As
filed
with the Securities and Exchange Commission on January 23, 2007
An
Exhibit List can be found on page II-6.
Registration
No. 333-_____
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
NEW
CENTURY COMPANIES, INC.
(Name
of
small business issuer)
Delaware
|
3541
|
06-10345787
|
(State
or other jurisdiction
|
(Primary
standard
|
(IRS
employer
|
of
incorporation)
|
industrial
code number)
|
identification
number)
|
9835
Santa Fe Springs Road
Santa
Fe
Springs, CA 90670
(562)
906-8455
(Address
and telephone number of principal executive offices
and
principal place of business)
David
Duquette
President
9835
Santa Fe Springs Road
Santa
Fe
Springs, CA 90670
(562)
906-8455
(Name,
address and telephone number of agent for service)
Copies
to:
Marc
Ross, Esq.
Marcelle
S. Balcombe, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas, 21st Floor.
New
York,
New York 10018
(212)
930-9700 (212) 930-9725 (fax)
APPROXIMATE
DATE OF PROPOSED SALE TO THE PUBLIC:
From
time
to time after this Registration Statement becomes effective.
If
any
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities to be registered
|
|
Amount
to be registered
|
|
Proposed
maximum offering price per share (1)
|
|
Proposed
maximum aggregate offering price
|
|
Amount
of registration fee
|
|
Common
stock, $.10 par value
|
|
|
385,000
|
|
$
|
0.35
|
|
$
|
132,825
|
|
$
|
14.21
|
|
Common
stock , $.10 par value (2)
|
|
|
3,850,000
|
|
$
|
0.35
|
|
$
|
1,328,250
|
|
$
|
142.12
|
|
Total
|
|
|
4,235,000
|
|
|
|
|
|
|
|
$
|
156.34
|
|
(1)
Estimated solely for purposes of calculating the registration fee in accordance
with Rule 457(c) and 457(g) under the Securities Act of 1933, using the average
of the high and low price as reported on the Over-The-Counter Bulletin Board
on
January 17, 2007, which was $0.35 per share.
(2)
Includes shares of our common stock, par value $0.10 per share, which may be
offered pursuant to this registration statement, which shares are issuable
upon
conversion of convertible notes held by the selling stockholders.
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT
TO COMPLETION, DATED JANUARY 23, 2007
NEW
CENTURY COMPANIES, INC.
4,235,00
SHARES OF
COMMON
STOCK
This
prospectus relates to the resale by the selling stockholders of up to 4,235,000
shares of our common stock, including 3,850,000 shares of common stock issuable
upon conversion of convertible notes, and 385,000 shares of our common stock.
The selling stockholders may sell common stock from time to time in the
principal market on which the stock is traded at the prevailing market price
or
in negotiated transactions. The selling stockholders may be deemed underwriters
of the shares of common stock, which they are offering. We will pay the expenses
of registering these shares.
Our
common stock is registered under Section 12(g) of the Securities Exchange Act
of
1934 and is listed on the Over-The-Counter Bulletin Board under the symbol
"NCNC.OB". The last reported sales price per share of our common stock as
reported by the Over-The-Counter Bulletin Board on January 19, 2007, was
$0.30.
Investing
in these securities involves significant risks. See "Risk Factors" beginning
on
page 6.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this Prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is January 23, 2007.
The
information in this Prospectus is not complete and may be changed. This
Prospectus is included in the Registration Statement that was filed by New
Century Companies, Inc, with the Securities and Exchange Commission. The selling
stockholders may not sell these securities until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities
and
is not soliciting an offer to buy these securities in any state where the sale
is not permitted.
TABLE
OF CONTENTS
Prospectus
Summary
|
|
1
|
Risk
Factors
|
|
6
|
Forward
Looking Statements
|
|
10
|
Use
of Proceeds
|
|
10
|
Management's
Discussion and Analysis or Plan of Operation
|
|
10
|
Description
of Property
|
|
16
|
Legal
Proceedings
|
|
16
|
Management
|
|
16
|
Executive
Compensation
|
|
17
|
Certain
Relationships and Related Transactions
|
|
19
|
Market
for Common Equity and Related Stockholder Matters
|
|
19
|
Security
Ownership of Certain Beneficial Owners and Management
|
|
20
|
Selling
Stockholder
|
|
20
|
Description
of Securities
|
|
21
|
Plan
of Distribution
|
|
23
|
Legal
Matters
|
|
24
|
Experts
|
|
24
|
Available
Information
|
|
24
|
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
|
|
24
|
Index
to Consolidated Financial Statements
|
|
F-1
|
You
may
only rely on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with different
information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to
sell
or a solicitation of an offer to buy any common stock in any circumstances
in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under
any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained
by
reference to this prospectus is correct as of any time after its
date.
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including the "risk factors" section,
the
financial statements and the notes to the financial statements.
NEW
CENTURY COMPANIES, INC.
We
are
engaged in acquiring, re-manufacturing and selling pre-owned Computer
Numerically Controlled ("CNC") machine tools to manufacturing customers. We
provide rebuilt, retrofit and remanufacturing services for numerous brands
of
machine tools.
We
also
manufacture 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 our 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, medical, aerospace and
mining fields.
We
sell
our products to customers in the United States, Canada and Mexico.
Over
the
last several years, we have designed and developed a large horizontal CNC
turning lathe with productivity features new to the metalworking industry.
We
believe that a potential market for the Century Turn Lathe, in addition to
the
markets mentioned above, is aircraft landing gear.
We
are
also engaged in assembling sound-wall modules made from Quilite(R), a
lightweight, graffiti resistant concrete alternative used in freeway sound
barriers and in other sound absorbing structures and non-weight bearing
applications, where privacy or screening is necessary.
Our
principal offices are located at 9835 Santa Fe Springs Rd. Santa Fe Springs,
CA
90670 and our telephone number is (562) 906-8455. We are a Delaware
corporation.
The
Offering
|
|
|
|
|
|
Common
stock offered by selling stockholders
|
|
Up
to 4,235,000 shares of common stock, including 3,850,000 shares of
common
stock issuable upon conversion of convertible notes and 385,000 shares.
This number represents 36% of our total number of shares
outstanding.
|
|
|
|
Common
stock to be outstanding after the offering
|
|
Up
to 15,489,660 shares.*
|
|
|
|
Use
of proceeds
|
|
We
will not receive any proceeds from the sale of the common stock.
|
|
|
|
OTCBB
Symbol
|
|
NCNC.OB
|
*The
above information regarding common stock to be outstanding after the offering
is
based on 11,639,660 shares of common stock outstanding as of January 17, 2006
and assumes the issuance of 3,850,000 shares upon conversion of convertible
notes by our selling stockholder. This number does not include 385,000 shares
which are being offered by Selling Stockholders which have been already issued
and are included in our issued and outstanding as of January 17, 2006.
FINANCING
TRANSACTIONS
We
are
registering shares of common stock and shares of common stock underlying
convertible notes, in connection with the following financing transactions:
MOTIVATED
MINDS BRIDGE LOAN
On
February 15, 2006, to obtain funding for our operations, we issued a Series
A
Convertible Note (the "Note") in the principal amount of $300,000 to Motivated
Minds, LLC, an Arizona limited liability company (the "Lender"). The Note is
convertible into shares of our common stock, at a fixed conversion price of
$0.66 per share.
The
Note
bears interest as follows: (i) equal to twenty-four percent (24%) per annum
on
the unpaid principal balance from the issue date to the sixtieth (60th) day
from
the issue date; and (ii) twenty-seven percent (27%) per annum after the sixtieth
(60th) day from the Issue Date to the Maturity Date.
Pursuant
to the terms of the Note, the Note matured on the earliest date of a closing
of
a debt or equity financing or May 16, 2006. On March 7, 2006, the Note holder
and the Company agreed to extend the Note until May 16, 2006. As a consideration
for the extension, we issued 30,000 shares of restricted common stock to the
Lender. On August 8, 2006, we entered into an Allonge to the Note pursuant
to
which Motivated Minds agreed to extend the maturity date of the Note to provide
that $150,000 shall be due and payable on August 16, 2006 and $150,000 shall
be
due on October 16, 2006. In connection with the Allonge, we agreed to issue
45,000 shares of restricted common stock to Motivated Minds. Pursuant to an
amendment to the Registration Rights Agreement dated February 15, 2006, the
Company granted Motivated Minds piggy back registration rights with respect
to
the 45,000 shares of common stock. On August 16, 2006 we repaid $150,000 of
principal and all accrued interest to Motivated Minds. The due date on the
remaining $150,000 principal was extended through December 16, 2006 and we
issued an additional 30,000 restricted common stock to the Lender. On December
7, 2006, we repaid $50,000 of principal and the due date on $100,000 balance
on
Note was extended until January 31, 2007. Additionally, we agreed to add an
additional $5,000 to the interest due pursuant to the Note. On January 23,
2007,
we repaid the entire principal and interest in the aggregate amount of $105,000
due on the Note.
In
connection with the Note, we entered into a Registration Rights Agreement dated
February 16, 2006, pursuant to which we granted piggy back registration rights
to the Motivated Minds in connection with the shares that were issuabale upon
conversion of the Note, the shares issued to Motivated Minds, and issuable
upon exercise of the warrants.
In
connection with the initial issuance of the Note, we paid aggregate fees and
expenses of $30,000, issued 30,000 restricted shares of our common stock, and
454,545 warrants to Motivated Minds. The Warrant is exercisable at a price
of
$0.66 per share and will expire on February 14, 2011. Also, we issued an
aggregate of 45,454 warrants to the Placement Agents, Source Capital Group,
Inc.
and Ascendiant Securities, LLC, which warrants are exercisable at a price of
$.66 per share and expire on February 14, 2011.
In
summary, we have issued to Motivated Minds an aggregate 135,000 restricted
shares of common stock, as inducements for the convertible note and extensions
of the maturity due date, which are being registered in this Registration
Statement of which this prospectus forms a part thereof. The shares were issued
in reliance upon an exemption from registration pursuant to Section 4(2) under
the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder.
Motivated
Minds has contractually agreed to restrict its ability to exercise the warrant
and convert the Note and receive shares of our common stock such that the number
of shares of our common stock held by it and its affiliates, after such
conversion does not exceed 4.99% of our then issued and outstanding shares
of
common stock.
The
Note
and the Warrants were offered and sold to Motivated Minds in a transaction
made
in reliance upon exemptions from registration pursuant to Section 4(2) under
the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
Motivated Minds is an accredited investor as defined in Rule 501 of Regulation
D
promulgated under the Securities Act of 1933.
CAMOFI
PRIVATE PLACEMENT
On
February 28, 2006, to obtain funding for our operations, we entered into a
Securities Purchase Agreement ("CAMOFI Purchase Agreement") with CAMOFI Master
LDC ("CAMOFI") for the sale of (i) $3,500,000 in 12% Senior Secured Convertible
Note (the "CAMOFI Note") which are convertible into common stock at a fixed
conversion price of $0.63 and (ii) stock purchase warrants (the "Warrant")
to
purchase 3,476,190 shares of our common stock at a fixed exercise price of
$0.63. We closed the financing pursuant to the CAMOFI Purchase Agreement on
February 28, 2006.
The
CAMOFI Note bears interest at 12% and matures on February 28, 2009. Interest
on
the aggregate of the unconverted and then outstanding principal amount is
payable monthly in arrears, in cash or registered shares of common stock at
the
Company's election, or a combination thereof, beginning on the first day of
the
first month after the issuance date of March 1, 2006. Notwithstanding the
foregoing, payment in shares of common stock can only occur if during the 20
trading days immediately prior to the payment date, the payment in shares of
common stock would not exceed 25% of the volume for any of the previous 20
trading days, we shall have given the holder notice, and the following
conditions (the “Equity Conditions”) have been met: (i) we have duly honored
conversions and redemptions; (ii) all liquidated damages and other amounts
owing
in respect of the CAMOFI Note have been paid; (iii) there is an effective
registration statement pursuant to which the holder is permitted to resell
all
of the shares issuable pursuant to the CAMOFI Purchase Agreement; (iv) our
stock
is listed or quoted for trading on either of the Nasdaq SmallCap Market, the
American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market
or the OTC Bulletin Board and the shares issuable pursuant to the CAMOFI
Purchase Agreement are listed for trading; (v) there is sufficient number of
authorized but unissued and unreserved shares for the issuance of shares
issuable pursuant to the CAMOFI Purchase Agreement; (vi) we are not in default
under the CAMOFI Purchase Agreement; (vii) the shares issued or issuable will
not exceed 4.99%; (viii) no public announcement of a pending or proposed
fundamental transaction (such as a merger or consolidation of the Company,
any
completed tender offer or exchange, any reclassification of our common stock
or
compulsory share exchange where our common stock is effectively converted into
or exchanged for other securities, cash or property) or change of control
transaction has occurred that has not been consummated; (ix) the closing price
of our common stock is at lease 115% of the conversion price of the CAMOFI
Note,
(as adjusted).
We
have
the right to prepay in cash, all, or a portion of the CAMOFI Note, at 120%
of
the principal amount plus accrued interest at the date of prepayment. In
addition, we are required to repay the CAMOFI Note at 120% of the principal
amount thereof plus accrued interest to the date of repayment in the event
we
shall (A) sell all or a portion of the our assets, (B) become subject to change
in control transaction, or (C) Quilite International, LLC's audited financial
statement are materially worse than its unaudited financial statements. In
determining whether Qulite’s audited financial statements are materially worse
than its unaudited financial statements, we will rely on a qualified third
party
accounting expert to determine the differences. The comparison will take place
prior to the closing of any transaction between the Company and Quilite.
Presently, the Company has not set a time for the consummation of any
transactions with Quilite.
On
the
first day of each month, commencing September 1, 2006, we are required to redeem
1/30th of the original principal amount of the CAMOFI Note plus accrued but
unpaid interest, the sum of all liquidated damages and any other amounts then
owing to such Holder in respect of the Note which shall be paid in cash, equal
to 105% of such amount; provided, however, upon 10 trading days prior written
irrevocable notice, in lieu of a cash redemption payment, we may elect to pay
100% of such amount due in shares of our common stock based on a conversion
price equal to 85% of the average of the 10 consecutive VWAPs immediately prior
to the applicable payment. As of December 31, 2006, we have repaid approximately
$467,000 of principal balance of the Note.
Upon
the
occurrence of an event of default, at the Holder's election, the full principal
amount of the Note, together with interest and any other amounts owed pursuant
to the CAMOFI Note shall become immediately due and payable in cash. The
aggregate amount payable upon an event of default shall be equal to 120% of
the
principal amount of the CAMOFI Note, plus all accrued and unpaid interest
thereon and all other costs, expenses, and liquidated damages due with respect
to such CAMOFI Note. Commencing 5 days after the occurrence of any event of
default that results in the eventual acceleration of the CAMOFI Note, the
interest rate on the Note shall accrue at the rate of 20% per annum, or such
lower maximum amount of interest permitted to be charged under applicable law.
Pursuant to the terms of the Note, an event of default means (subject to any
applicable grace or cure period) (i) any default in the payment of any principal
interest or liquidated damages in connection with the Note; (ii) failure to
observe any covenant or agreement contained in the Note; (iii) a default under
any of the other documents executed in connection with the CAMOFI Purchase
Agreement or any other material agreement, lease document or instrument to
which
the Company or any subsidiary is bound which default is not cured within 10
trading days; (iv) any representation or warranty made in any of the documents
or in any written statement delivered to CAMOFI shall be untrue in all material
respects as of the date made or deemed made; (v) any proceeding under applicable
bankruptcy or insolvency laws commenced against the Company or its subsidiaries,
which remains un-dismissed after 60 days or any adjudication of the Company
or
any of its subsidiaries is adjudicated insolvent or bankrupt.
In
connection with the CAMOFI Purchase Agreement, we entered into an escrow
agreement by and among, CAMOFI, Katten Muchin Rosenman, as Escrow Agent, and
us
and a letter agreement with CAMOFI, pursuant to which $1,500,000 was deposited
into escrow by CAMOFI. Pursuant to the terms of the letter agreement, the
$1,500,000 will be released to us upon consummation of the acquisition of
Quilite International LLC, provided however, (v) the terms of such acquisition
are satisfactory to CAMOFI; (w) CAMOFI shall be satisfied, in its sole
discretion, with the progress of negotiations for the extension or renewal
of
our Headquarters lease; (x) no default or Event of Default shall have occurred
or be continuing; (y) there shall have been no material adverse change in our
business and the business of our subsidiaries or results of operations; and
(z)
the Equity Conditions shall have all been satisfied. Based upon changed
circumstances the parties determined to release the funds held in escrow to
the
Company as follows: (a) $750,000 on July 10, 2006, which was used for general
working capital purposes and (b) $750,000 on August 4, 2006, which was used
to repay a portion of the CAMOFI Note.
The
Warrant is exercisable at a price of $0.63 per share and will expire on February
28, 2013. In the event that there is no effective registration statement
covering the resale of the shares underlying the Warrant, the Warrant may be
exercised by means of a cashless exercise. The Warrant provides for certain
adjustments upon the occurrence of certain events, including, but not limited
to, any payment of a stock dividend or distributions to our shareholders; (2)
subdivision of our common stock into a larger number of shares; (3)
reclassification of our common stock; and (4) the combination of our common
stock into a smaller number of shares.
On
December 19, 2006, we entered into an Amended and Restated Registration Rights
Agreement (the “Amendment”) with CAMOFI. Pursuant to the Amendment we agreed to
file registration statements to cover the resale of the shares issuable upon
conversion of the CAMOFI Note and warrants as follows:
|
i)
|
on
or before January 31, prepare and file with the United States Securities
and Exchange Commission (“SEC”) a Registration Statement covering the
resale of all common Stock issuable upon conversion of the 12%
Senior
Secured Convertible Note dated February 28, 2009, up to 33% of
our issued
and outstanding stock;
|
|
ii)
|
within
90 days from effectiveness of the Registration Statement referred
to in i)
above, prepare and file a Registration Statement covering the resale
of
all common Stock issuable upon conversion of the 12% Senior Secured
Convertible Note dated February 28, 2009 to the extent not registered
above plus all shares of common stock underlying the Purchaser
Warrants,
up to 33% of our issued and outstanding stock;
|
|
iii)
|
within
90 days from effectiveness of the Registration Statement referred
to in
ii) above, prepare and file a Registration Statement covering the
resale
of all common Stock issuable upon conversion of the 12% Senior
Secured
Convertible Note dated February 28, 2009 plus all shares of common
stock
underlying the Purchaser Warrants to extent not registered above,
up to
33% of our issued and outstanding stock;
|
|
iv)
|
within
90 days from effectiveness of the Registration Statement referred
to in
iii) above, prepare and file a Registration Statement covering
the resale
of all additional Purchaser Warrants to extent not registered above,
up to
33% of our issued and outstanding stock;
|
We
agreed
to use our best efforts to have the registration statements mentioned above
declared effective 90 days after each filing date (105 days for the current
Registration Statement), or within 120 days, if the applicable registration
statement is reviewed by the SEC. In addition, we agreed to use our best efforts
to keep each registration statement continuously effective under the Securities
Act until all the securities covered by such registration statement have been
sold or may be sold without volume restriction pursuant to Rule
144(k).
Pursuant
to the Amendment, CAMOFI agreed to waive any liquidated damages accrued prior
to
the date of the Amendment. However,
failure to meet the timetable set forth above will subject us to liquidated
damages equal to 1.5% of the outstanding principal of the Notes for any
registrable securities then held by CAMOFI for the first 30 days (or part
thereof) after the default date and an additional 1.5% for any subsequent 30-day
period (or part thereof), thereafter or a maximum of 10% of the remaining
balance of the CAMOFI Notes. If we fail to pay any partial liquidated damages
within seven days after the date payable, we will be required to pay interest
thereon at a rate of 20% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to CAMOFI, accruing daily from the
date
such partial liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full.
In
connection with the Amendment, we issued to CAMOFI warrants to purchase
1,500,000 shares of common stock of our common stock, at an exercise price
of
$0.35 for a term of seven years. We are also required to register the shares
underlying these warrants.
The
CAMOFI Note is secured by substantially all of our assets.
CAMOFI
has contractually agreed to restrict its ability to convert the CAMOFI Note
and
exercise the Warrant and receive shares of our common stock such that the number
of shares of our common stock held by them and their affiliates after such
conversion or exercise does not exceed 4.99% of our then issued and outstanding
shares of common stock.
In
connection with the CAMOFI Note, we paid aggregate fees and expenses of $377,500
to CAMOFI. In addition, we issued 722,539 warrants to the Placement Agent,
Ascendiant Securities, LLC, and its assignee which warrants are exercisable
at
price of $0.63 and which expire on February 28, 2013. Ascendiant also received
250,000 restricted shares of our common stock.
The
CAMOFI Note and corresponding warrants were offered and sold to CAMOFI in a
private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated thereunder. CAMOFI is an accredited investor as defined in Rule
501
of Regulation D promulgated under the Securities Act of 1933.
RISK
FACTORS
This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this prospectus. If any of the following risks actually occur, our business,
operating results and financial condition could be harmed and the value of
our
stock could go down. This means you could lose all or a part of your investment.
There are a number of factors that are not identified herein that could have
a
negative effect. Among the factors that could cause actual results to differ
materially are the following:
|
·
|
adverse
changes in the conditions in the specific markets for our
products;
|
|
·
|
visibility
to, and the actual size and timing of, capital expenditures by our
customers;
|
|
·
|
inventory
practices, including the timing of deployment, of our customers;
|
|
·
|
adverse
changes in the public and private equity and debt markets and the
ability
of our customers and suppliers to obtain financing or to fund capital
expenditures;
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adverse
changes in the credit ratings of our customers and suppliers;
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a
general downturn in the overall
economy;
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a
decline in government defense funding that lowers the demand for
defense
equipment and retrofitting;
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competitive
pricing and availability of competitive products; and
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adverse
changes in the ability of the company to obtain financing or to fund
capital expenditures, mergers and acquisitions or growth.
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RISKS
RELATING TO OUR COMPANY
WE
HAVE INCURRED LOSSES IN THE PAST AND HAVE A LIMITED OPERATING HISTORY ON WHICH
TO BASE AN EVALUATION OF OUR PROSPECTS, WHICH CAN HAVE A DETRIMENTAL EFFECT
ON
THE LONG-TERM CAPITAL APPRECIATION OF OUR STOCK.
We
have a
limited operating history on which to base an evaluation of our business and
prospects. For the years ended December 31, 2005 and 2004, we had net income
(loss) of $668,359 and $(1,423,359), respectively, and a net loss of $(990,962)
for the nine months ended September 30, 2006. As of September 30, 2006, we
had a
working capital deficit of $208,902. We cannot give any assurance that we will
generate significant revenue or always have profits. In addition, we anticipate
that we will require additional capital commitments during 2007 to sustain
our
operations. This could have a detrimental effect on the long-term capital
appreciation of our stock.
THERE
CAN BE NO ASSURANCE THAT WE WILL ACHIEVE PROFITABILITY.
There
can
be no assurance that we will achieve profitability. Our revenues and operating
results may fluctuate from quarter to quarter and from year to year due to
a
combination of factors, including, but not limited to, cost of production and
volume of sales. There can be no guarantee that we will be able to achieve
profitability on a quarterly or annual basis. If we do not achieve
profitability, our business will be adversely affected and investors may lose
all or substantially all of their investment.
WE
ARE DEPENDENT UPON A FEW KEY PERSONNEL AND THEIR LOSS MAY NEGATIVELY IMPACT
OUR
RESULTS FROM OPERATIONS
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 Czikmantori. 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.
WE
MAY BE EXPOSED TO 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 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.
WE
RELY ON EXTERNAL FINANCING TO MEET OUR CASH REQUIREMENTS
In
February 2006, we received $300,000 from Motivated Minds and $3,500,000 in
debt
financing from CAMOFI. However we will continue to rely upon external financing
sources to meet the cash requirements of our ongoing operations. In the future,
we may be required to raise additional funds, particularly if we exhaust
the
funds advanced under that agreement, are unable to generate positive cash
flow
as a result of our operations and are required to repay the convertible
debentures as a result of Motivated Mind's and CAMOFI's failure to convert
the
debentures into common stock. To the extent that we are unable to raise
sufficient capital, our business plan will require substantial modification
and
our operations curtailed. These conditions raise substantial doubt about
our
ability to continue as a going concern. Our 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.
WE
MAY NEED SIGNIFICANT INFUSIONS OF ADDITIONAL CAPITAL, WHICH MAY RESULT IN
DILUTION TO YOUR OWNERSHIP AND VOTING RIGHTS IN US.
Based
upon our current cash reserves and forecasted operations, we may need to obtain
outside funding to implement our plan of operation over the next twelve months.
Our need for additional capital to finance our business strategy, operations,
and growth will be greater should, among other things, revenue or expense
estimates prove to be incorrect. If we fail to arrange for sufficient capital
in
the future, we may be required to reduce the scope of our business activities
until we can obtain adequate financing. We may not be able to obtain additional
financing in sufficient amounts or on acceptable terms when needed, which could
adversely affect our operating results and prospects and force us to curtail
our
business operations. Debt financing must be repaid regardless of whether or
not
we generate profits or cash flows from our business activities. Equity financing
may result in dilution to existing stockholders. If we do not receive funding
at
lower prices, this will have a dilutive effect on the value of our securities
issued at higher prices. Further, the sale, or potential sale of large amounts
of our securities will, in all likelihood, have a depressive effect on the
price
of our securities which will affect the value of your investment.
OUR
AUDITORS HAVE INCLUDED A GOING CONCERN MATTER IN THEIR
OPINION
Our
auditors opinion regarding our financial statements includes concerns about
our
ability to continue as a going concern, which contemplates among other things,
the realization of assets and satisfaction of liabilities in the normal course
of business. These concerns arise from the fact that as of December 31, 2005
we
had a negative working capital of approximately $2,083,000, an accumulated
deficit of approximately $6,959,000 and were in default on certain notes
payable. These factors raise substantial doubt about our ability to continue
as
a going concern. We intend to fund our operations through anticipated increased
sales and debt and equity financing arrangements which management believes
may
be insufficient to fund our capital expenditures, working capital and other
cash
requirements for the year ending December 31, 2006. We will be required to
seek
addition funds to finance our long-term operations. There can be no assurance
that we will be able to able to obtain additional financing. If we are unable
to
continue as a going concern, you may lose your entire investment.
RISKS
RELATING TO OUR COMMON STOCK
IF
WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS
TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES
IN
THE SECONDARY MARKET.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As
a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
OUR
COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING
MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR
STOCK.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
For
any transaction involving a penny stock, unless exempt, the rules require:
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that
a broker or dealer approve a person's account for transactions in
penny
stocks; and
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the
broker or dealer receive from the investor a written agreement to
the
transaction, setting forth the identity and quantity of the penny
stock to
be purchased.
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In
order
to approve a person's account for transactions in penny stocks, the broker
or
dealer must:
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obtain
financial information and investment experience objectives of the
person;
and
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make
a reasonable determination that the transactions in penny stocks
are
suitable for that person and the person has sufficient knowledge
and
experience in financial matters to be capable of evaluating the risks
of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the
broker or dealer received a signed, written agreement from the investor prior
to
the transaction. Generally,
brokers may be less willing to execute transactions in securities subject to
the
"penny stock" rules. This may make it more difficult for investors to dispose
of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks.
OUR
SHARE PRICE IS VOLATILE
Our
Common Stock has experienced, and may continue to experience, substantial price
volatility, particularly as a result of variations between our actual or
anticipated financial results and the published expectations of analysts and
as
a result of announcements by us and our competitors. 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 our securities may negatively impact our
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
our
Common Stock.
RISKS
RELATING TO OUR CURRENT FINANCING ARRANGEMENT
THERE
ARE A LARGE NUMBER OF SHARES UNDERLYING OUR SECURED CONVERTIBLE NOTES AND
WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES
MAY
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As
of
December 31, 2006, we had 11,639,660 shares of common stock issued and
outstanding, approximately $2,905,000 of convertible notes outstanding that
may
be converted into an estimated 4,612,000 shares of common stock and outstanding
warrants and options to purchase 9,653,728 shares of common stock. All of the
shares, including the shares issuable upon conversion of the convertible notes,
may be sold without restriction upon effectiveness of a registration statement
which includes those shares. The sale of these shares may adversely affect
the
market price of our common stock.
THE
ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE NOTES AND EXERCISE OF
OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR
EXISTING STOCKHOLDERS.
The
issuance of shares upon conversion of the secured convertible notes and exercise
of warrants may result in substantial dilution to the interests of other
stockholders since the selling stockholders may ultimately convert and sell
the
full amount issuable on conversion. Although Motivated Minds or CAMOFI may
not
convert their secured convertible notes and/or exercise their warrants if such
conversion or exercise would cause them to own more than 4.99% of our
outstanding common stock, this restriction does not prevent Motivated Minds
or
CAMOFI from converting and/or exercising and selling some of their holdings,
selling shares of common stock obtained and then converting further. In this
way, Motivated Minds or CAMOFI could sell more than this limit while never
holding more than this limit.
IF
WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING SECURED CONVERTIBLE
NOTES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE, OR
RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE SECURED CONVERTIBLE NOTES,
IF
REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE
SALE
OF SUBSTANTIAL ASSETS.
In
February 28, 2006, we entered into a Securities Purchase Agreement for the
sale
of an aggregate of $3,500,000 principal amount of secured convertible notes.
The
secured convertible notes are due and payable, with 12% interest, three years
from the date of issuance, unless sooner converted into shares of our common
stock. In addition, any event of default such as our failure to repay the
principal or interest when due, our failure to issue shares of common stock
upon
conversion by the holder, our failure to timely file a registration statement
or
have such registration statement declared effective, breach of any covenant,
representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business, the filing of a money judgment,
writ or similar process against our company in excess of $50,000, the
commencement of a bankruptcy, insolvency, reorganization or liquidation
proceeding against our company and the delisting of our common stock could
require the early repayment of the secured convertible notes, including a
default interest rate of 15% on the outstanding principal balance of the notes
if the default is not cured with the specified grace period. If we were required
to repay the secured convertible notes, we would be required to use our limited
working capital and raise additional funds. If we were unable to repay the
notes
when required, the note holders could commence legal action against us and
foreclose on all of our assets to recover the amounts due. Any such action
would
require us to curtail or cease operations.
IF
AN EVENT OF DEFAULT OCCURS UNDER THE SECURITIES PURCHASE AGREEMENT, SECURED
CONVERTIBLE NOTES, WARRANTS, SECURITY AGREEMENT OR INTELLECTUAL PROPERTY
SECURITY AGREEMENT, THE INVESTORS COULD TAKE POSSESSION OF ALL OUR GOODS,
INVENTORY, CONTRACTUAL RIGHTS AND GENERAL INTANGIBLES, RECEIVABLES, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER, AND INTELLECTUAL PROPERTY.
In
connection with the Securities Purchase Agreements we entered into in February
2006, we executed a Security Agreement in favor of CAMOFI granting them a first
priority security interest in all of our goods, inventory, contractual rights
and general intangibles, receivables, documents, instruments, chattel paper,
and
intellectual property. The Security Agreement states that upon the occurrence
of
an event of default as defined in the Notes and pursuant to the Security
Agreement, the Investors have the right to take possession of the collateral,
to
operate our business and the business of our subsidiaries using the collateral,
and have the right to assign, sell, lease or otherwise dispose of and deliver
all or any part of the collateral, at public or private sale or otherwise to
satisfy our obligations under these agreements.
FORWARD-LOOKING
STATEMENTS
We
and
our representatives may from time to time make written or oral statements that
are "forward-looking," including statements contained in this prospectus and
other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements.
We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Important
factors on which such statements are based are assumptions concerning
uncertainties, including but not limited to uncertainties associated with the
following:
(a)
volatility or decline of our stock price;
(b)
potential fluctuation in quarterly results;
(c)
our
failure to earn revenues or profits;
(d)
inadequate capital and barriers to raising the additional capital or to
obtaining the financing needed to implement its business plans;
(e)
inadequate capital to continue business;
(f)
changes in demand for our products and services;
(g)
rapid
and significant changes in markets;
(h)
litigation with or legal claims and allegations by outside parties;
(i)
insufficient revenues to cover operating costs.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholders. We will not receive any proceeds
from the sale of shares of common stock in this offering.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
OVERVIEW
We
are
engaged in acquiring, re-manufacturing and selling pre-owned Computer
Numerically Controlled ("CNC") machine tools to manufacturing customers. We
provide rebuilt, retrofit and remanufacturing services for numerous brands
of
machine tools.
We
also
manufacture 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 our 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, medical, aerospace and
mining fields. We sell our products to customers in the United States, Canada
and Mexico.
Over
the
last several years, we have designed and developed a large horizontal CNC
turning lathe with productivity features new to the metalworking industry.
We
believe that a potential market for the Century Turn Lathe, in addition to
the
markets mentioned above, is aircraft landing gear.
We
are
also engaged in assembling sound-wall modules made from Quilite(R), a
lightweight, graffiti resistant concrete alternative used in freeway sound
barriers and in other sound absorbing structures and non-weight bearing
applications where privacy or screening is necessary.
.PLAN
OF OPERATIONS
Our
earnings for the three months ended September 30, 2006 were negative as a result
of an increase in cost of goods sold.
Our
current strategy is to expand our customer sales base with our present line
of
machine products. Our growth strategy also includes strategic acquisitions
in
addition to growing the current business. Plans for expansion are funded through
current working capital from ongoing sales and additional funds in the form
of
debt or equity. However, there is no guarantee that any capital raised will
be
sufficient to execute our business plan. To the extent that the capital raised
is not sufficient, our business plan will be required to be substantially
modified and our operations curtailed.
RESULTS
OF OPERATIONS
FISCAL
YEARS ENDED DECEMBER 31, 2005 COMPARED TO DECEMBER 31,
2004.
Revenues.
New Century generated revenues of $6,038,459 for the fiscal year ended December
31, 2005, which was a 31% increase from $4,605,813 for the fiscal year ended
December 31, 2004. The increase is the result of an increase in sales based
on
better market conditions for New Century machines.
Gross
Profit. There was a substantial increase in gross profit for the fiscal year
ended December 31, 2005, of $2,171,956, due to the increased revenues from
higher selling prices and a $739,310 decrease in cost of sales. The decrease
in
cost of sales is principally related to more efficient use of material and
labor
resources. Gross profit was $1,714,970, compared to a loss of $(456,986) from
the corresponding period in 2004.
Net
Income . Net income increased to $668,359 for the fiscal year ended December
31,
2005 compared to a net loss of $1,423,359 for the fiscal year ended December
31,
2004. The increase in net income is primarily attributed to a $2,352,442
increase in operating income, the increase in revenues and the decrease in
cost
of sales.
Interest
Expense. Interest expense for the fiscal year ending December 31, 2005 increased
to $235,592, compared to $181,468 for the period ended December 31, 2004. The
increase of 30% is primarily the result of $47,500 amortization of shares of
common stock issued to a Note Payable holder as a consideration for agreement
to
extend the repayment of the note.
THREE
MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO SEPTEMBER 30,
2005.
Revenues.
The Company generated revenues of $1,996,131 for the three months ended
September 30, 2006, which was a $391,280 or a 24% increase from $1,604,851
for
the three months ended September 30, 2005. The increase is the result of a
growth in customer orders, based on an increased demand in the market for
machine tools and on the capability to sell the Company’s product at higher
contract amounts.
Gross
Profit. Gross profit for the three months ended September 30, 2006, was $368,900
or 18% of revenues, compared to $596,216, or 37% of revenues for the three
months ended September 30, 2005, a 38% decrease. The decrease of gross profit
is
the result of increased cost of goods sold. The increase in cost is determined
by an increase of direct labor expense and the cost of direct material used.
Due
to expected increase in customer orders, the Company expanded its labor force.
A
short period of time is required to adequately train new hires to become
productive.
Operating
Income. Operating loss for the three months ended September 30, 2006, was
$(18,661) compared to an operating income of $347,625 for the three months
ended
September 30, 2005. The decrease of $366,286 or 105% in operating income is
due
to higher direct cost and $128,799 increase in general and administration
expense. This increase was primarily due to increases in legal and accounting
expenses and lower gross margins.
Interest
Expense. Interest expense for the three months ended September 30, 2006 was
$514,302 compared with $63,369 for the three months ended September 30, 2005.
The $450,933 increase in interest expense is due primarily to $291,667
amortization of beneficial conversion feature and discount on warrants
associated with two convertible notes payable and amortization of deferred
financing costs related to warrants and common stock granted to third parties
in
connection with the convertible notes financing.
Liquidated
damages expense. The Company accrued $420,000 of liquidated damages during
the
quarter ended September 30, 2006 on $3.5 million convertible debt as a penalty
for failure to have a registration statement declared effective as required
by
our previous financing. (See Note 5 to the condensed consolidated financial
statements).
Derivative
liability expense. As of September 30, 2006, a decrease in fair value of the
derivative liability associated with the warrants to purchase common stock,
granted in connection with the $3.5 million convertible debenture, was
$(834,285). The decrease in fair value was reversed to derivative liability
expense (See Note 1 to the condensed consolidated financial statements).
NINE
MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO SEPTEMBER 30,
2005.
Revenues.
We generated revenues of $5,993,751 for the nine months ended September 30,
2006, which was a $1,749,032 or a 41% increase from $4,244,719 for the nine
months ended September 30, 2005. The increase is the result
of an
increase in customer orders, based on a better market for machine tools and
on
the capability to sell the Company’s product at higher contract
amounts.
Gross
Profit. Gross profit for the nine months ended September 30, 2006, was
$1,578,860 or 26% of revenues, compared to $1,354,403, or 31% of revenues for
the nine months ended September 30, 2005, a 17% increase. The increase of gross
profit is the result of increased sales.
Operating
Income. Operating income for the nine months ended September 30, 2006, was
$276,027 compared to operating income of $449,193 for the nine months ended
September 30, 2005. The decrease of $173,166 or 39% in operating income is
due
to $229,303 increase in general and administration expense. This increase was
primarily due to increases in legal and accounting expenses.
Interest
Expense. Interest expense for the nine months ended September 30, 2006 was
$1,560,740 compared with $182,654 for the nine months ended September 30, 2005.
The $1,378,086 increase in interest expense is due primarily to $1,275,173
amortization of beneficial conversion feature and discount on warrants
associated with two convertible notes payable and amortization of deferred
financing costs related to warrants and common stock granted to third parties
in
connection with the convertible notes financing.
Liquidated
damages expense. We accrued $582,500 liquidated damages during the nine month
ended September 30, 2006 on $3.5 million convertible debt as a penalty for
failure to have a registration statement declared effective as required by
our
previous financing. (See Note 5 to the condensed consolidated financial
statements).
Derivative
liability expense. As of September 30, 2006, a decrease in fair value of the
derivative liability associated with the warrants to purchase common stock,
granted in connection with the $3.5 million convertible debenture, was
$(869,047). The decrease in fair value was reversed to derivative liability
expense (See Note 1).
FINANCIAL
CONDITION, LIQUIDITY, CAPITAL RESOURCES
The
net
cash increase of the Company during the nine months ended September 30, 2006
was
$60,344. The increase is due to $1,670,874 net cash provided by financing
activities offset by $1,590,530 net cash used in operating activities and
$20,000 net cash used in investing activities used to acquire new equipment.
Currently, the Company’s management attracted additional funding in the form of
subordinated debt. However, there is no guarantee that the capital raised will
be sufficient to execute its business plan. To the extent that the capital
raised is not sufficient, the Company's business plan will be required to be
substantially modified and its operations curtailed.
The
Company is currently improving its liquidity by the following actions:
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The
Company continues to implement plans to increase
revenues.
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The
Company continues its program for selling inventory that has been
produced
or is currently in production.
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The
Company continues to implement plans to further reduce operating
costs by
improved process control and greater
productivity.
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The
Company is continually seeking investment capital through the public
markets.
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However,
there is no guarantee that any of these strategies will enable us to meet our
financial obligations for the foreseeable future.
INFLATION
AND CHANGING PRICES
We
do not
foresee any adverse effects on our earnings as a result of inflation or changing
prices.
OFF-BALANCE
SHEET ARRANGEMENTS
We
have
no off-balance sheet arrangements, as defined in Regulation S-B Section
303.
GOING
CONCERN
Our
independent certified public accountants have stated in their report, that
we
have a working capital deficit, a significant accumulated deficit and are in
default on certain notes payable. These conditions raise substantial doubt
about
our ability to continue as a going concern.
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 the 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:
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.
Staff
Accounting Bulletin 104 ("SAB 104"), "Revenue Recognition," 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 104. The Company recognizes
revenue of long-term contracts pursuant to SOP 81-1.
METHOD
OF ACCOUNTING FOR LONG-TERM CONTRACTS
We
use
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.
CLASSIFICATION
OF WARRANT OBLIGATION
In
connection with the issuance of the 12% Senior Secured Convertible Notes (See
Note 1 of the Company's financial statements for the quarter ended September
30,
2006), the Company had an obligation to file a registration statement covering
the resale of 125% of the Registrable Securities, as defined in the Registration
Rights Agreement. The obligation to file the registration statement met the
criteria of an embedded derivative to be bifurcated pursuant to SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended.
Under this transaction, the Company was obligated to register for resale the
common shares underlying the warrants, and as a result, the embedded derivative
associated with this warrant obligation did not meet the scope exception of
paragraph 11(a) of SFAS No. 133. Specifically, at September 30, 2006, the
Company did not have any uncommitted registered shares to settle the warrant
obligation and accordingly, such obligation was classified as a liability
(outside of stockholders' deficit) in accordance with EITF Issue No. 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock." The classification of the warrant obligation
is evaluated at each reporting date. Under the Amended Registration Rights
Agreement executed on December 19, 2006, the Company’s obligation to file a
registration statement covering the resale of 125% of the Registrable Securities
requirement was eliminated, the Company’s obligation to pay liquidated damages
was capped to a maximum of 10% of the aggregate remaining balance of holders
subscription amounts, and the Registration Statement filing dates obligation
and
Effectiveness Date has been pushed forward. (See Exhibit 10.15). Therefore,
the
obligation to file the registration statement may no longer fall under the
embedded derivative criteria pursuant to SFAS No. 133, as amended. Additionally,
on December 21, 2006, the Financial Accounting Standards Board (“FASB”) issued
FASB Staff Position No. EITF No. 00-19-2, “Accounting for Registration Payment
Arrangements,” which could affect the accounting for both the warrants and
related registration rights. This pronouncement is effective immediately for
registration payment arrangements and the financial instruments subject to
those
arrangements that are entered into or modified subsequent to the date of
issuance of the pronouncement. For registration payment arrangements and
financial instruments subject to those arrangements that were entered into
prior
to the issuance of the pronouncement, the pronouncement is effective for
financial statements issued for fiscal years beginning after December 15, 2006,
and interim periods within those fiscal years. For registration payment
arrangements and financial instruments subject to those arrangements that were
entered into prior to the issuance of the pronouncement and that continue to
be
outstanding at the beginning of the period of adoption, transition shall be
achieved by reporting a change in accounting principle through a
cumulative-effect adjustment to the opening balance of retained earnings, or
other appropriate components of equity or net assets in the statement of
financial position, as of the first interim period for the fiscal year in which
the pronouncement is initially applied. The Company has not yet completed its
evaluation of the effect of such pronouncement on its current and future
consolidated financial statements, nor its effect the accounting for warrants
and related registration rights described above.
ESTIMATES
Critical
estimates made by management are, among others, deferred tax asset valuation
allowances, realization of inventories, collectibility of contracts receivable
and the estimating of costs for long-term construction contracts. Actual results
could materially differ from those estimates.
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, Organization and Summary of Significant
Accounting Policies, which discusses accounting policies that must be selected
by management when there are acceptable alternatives.
BUSINESS
SUMMARY
We
are
engaged in acquiring, re-manufacturing and selling pre-owned Computer
Numerically Controlled ("CNC") machine tools to manufacturing customers. We
provide rebuilt, retrofit and remanufacturing services for numerous brands
of
machine tools.
We
also
manufacture original equipment CNC large turning lathes and attachments under
the tradename 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 our 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 , medical, aerospace
and
mining fields.. We sell our products to customers in the United States, Canada
and Mexico.
Over
the
last four years, we have designed and developed a large horizontal CNC turning
lathe with productivity features new to the metalworking industry. We believe
that a potential market for the Century Turn Lathe, in addition to the markets
mentioned above, is aircraft landing gear.
We
are
also engaged in the assembling sound-wall modules made from Quilite(R). A
lightweight, graffiti resistant concrete alternative used in freeway sound
barriers and in other sound absorbing structures and non-weight bearing
applications where privacy or screening is necessary.
Corporate
History
On
May
25, 2001, the Company entered into a merger with New Century Remanufacturing,
Inc. Pursuant to the merger, all of the outstanding shares of New Century
Remanufacturing, Inc., a California corporation, were exchanged for shares
of
the Company on a 1/833.33 basis. After the reverse merger, the Company changed
its name to New Century Companies, Inc.
PRODUCTS
Quilite
We
assemble, on a subcontractor basis, and ship proprietary, privacy/sound-wall
modules from Quilite(R) throughout the U.S. and Canada. Quilite(R) is a material
that is lighter than standard concrete, graffiti-resistant, available in 16x16
inch blocks with superior sound blocking capability. This material has been
used
in a number of noise-blocking applications, including airports, community pools,
road barriers, residential surroundings, electrical transformer shelters, and
others. Quilite(R) can also be used in non-weight bearing applications where
privacy or screening is necessary. These include guarded-gate residential
communities barriers at sports stadiums and privacy screens on highway medians
to prevent driver distraction from oncoming traffic and rubbernecking due to
accidents.
Remanufactured
Machines
Our
machine tools services are provided to a variety of customers, where the machine
remanufacturing typically consists of replacing all components (CASTINGS),
realigning the machine, adding updated CNC capability, and electrical and
mechanical enhancements. Machines, which create circular products, are all
within the scope' of our machines' capabilities. Our machines (Horizontal
Turning Lathes, Vertical Turning Lathes, Vertical Boring Mills, and Horizontal
Boring Mills etc.) are used to manufacture jet-engine components; airplane
landing gear parts; power generation equipment; oil and gas production
components; construction materials; casks that store nuclear materials; and
bearings for windmills turrets guns, or torpedo tubes in submarines and ship
vessels and countless other parts.
The
machines take raw steel, which in its natural shape needs to be refined into
a
specific round part, and by utilizing a computer-directed tool, shapes the
steel
into very precise measurements. Once completed within two to four months, a
remanufactured machine becomes a "like new," state-of-the-art machine, which
often contains more iron ore and superior standards of strength than a new
machine, at a price substantially less than that of a new machine. We pass
these
savings on to our customers, which include such manufacturers as General
Electric Co., General Dynamics Corp., Siemens AG and Gardner Denver
Inc.
New
Machines (Century Turn)
We
manufacture original equipment under our "Century Turn" brand name. Century
Turn
products include, but are not limited to lathes and vertical boring mills.
These
machines are used to machine products such as landing gear and machine valve
bodies.
Growth
Strategy
Our
goal
is to become a leading provider of high precision Computer Numerically
Controlled turning centers through organic growth as well as through strategic
acquisitions. In addition, we intend to engage in the production of
Quilite(R).
We
market
our products and services primarily through direct sales and independent
distributors throughout the U S Canada and Mexico. We also intend to advertise
our products and services in the industrial trade publications, industry trade
shows, and on the Internet. Our focus is also to increase the sales of our
proprietary "new" horizontal boring mills and remanufactured vertical boring
mills. Our "new" vertical boring mills are designed around our proprietary
tooling changer that allows the machinist to utilize a wider range of lighter
weight tooling heads increasing the efficiency precision and dependability
of
the machine and ultimately creating a superior and timely finished
product
As
a
natural extension of our precision machine tool business, we plan to capitalize
on numerous opportunities in the fragmented machining industry by implementing
a
(vertical integration) roll-up strategy, where we could merge with and/or
acquire high precision large metal ring manufacturing companies This strategy
is
intended to attract the attention of the leading manufacturing companies by
ramping up revenue and income. In addition to our organic growth strategies,
we
also plan to make tactical and accretive acquisitions.
MACHINE
TOOL INDUSTRY
We
manufacture both new and refurbished machines that are used across a variety
of
industries. These machines are sold to companies who produce various "round"
products and parts in different but extremely precise measurements, depending
on
the industry. These products can be anything from large jet engines, casks
that
store nuclear materials, bearings for windmills, turrets, guns, or torpedo
tubes
in submarines and ship vessels, and more. The machines take raw steel, which
in
its natural shape needs to be refined into a specific round part, and by
utilizing a computer-directed tool, shapes the steel into very precise
measurements.
Many
measurements must be so precise that when removing the metal, it must be round
within 1/10,000 of an inch (approximately the equivalent of splitting an average
hair 30 times). The machines must be able to repeatedly furnish these precise
measurements for its products. For example, a jet engine must be precise to
1/10,000 of an inch due to the speed at which it operates. The engine, when
in
use, is going over 10,000 revolutions per minute (rpms). If the engine itself
were not perfectly round, it would vibrate and could detach from the
aircraft.
We
service companies such as General Electric, Rolls Royce, Pratt & Whitney
(and all of these companies' respective sub-tier support contractors), who
are
manufacturers of the jet engines. These companies specify the dimensions and
we
employ our large machines to create the parts. We have larger machines, which
span approximately 25 feet in diameter, and are used primarily for the housings
that go around nuclear reactors on submarines or aircraft carriers.
Employees
At
December 31, 2006, we had approximately 40 full time employees working in the
following departments: shop, clerical, engineering and management.
None
of
our employees are represented by a labor union or covered by a collective
bargaining agreement. We have not experienced work stoppages and consider our
employee relations to be good. Our business is not highly automated and we
do
not outsource specialized, repetitive functions such as cash delivery and
security. As a result, our labor requirements for operation of the network
are
relatively modest.
DESCRIPTION
OF PROPERTY
We
lease
our headquarters in Santa Fe Springs, California, which expires on December
31,
2007, 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.
|
|
|
|
|
|
9835
Santa Fe Springs Rd.
|
|
|
|
|
Santa
Fe Springs, CA 90670
|
|
Manufacturing
|
|
44,000
|
LEGAL
PROCEEDINGS
We
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. We are currently
not involved in any such litigation or any pending legal proceedings that
management believes could have a material adverse effect on our financial
position or results of operations.
MANAGEMENT
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, 2006. 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 Officer,
|
|
62
|
|
Chairman
of the Board, Chief Executive Officer,
|
|
|
|
|
Chief
Financial President and Director
|
|
|
|
|
|
Josef
Czikmantori
|
|
55
|
|
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.
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.
BOARD
COMMITTEES
Because
of our size, we presently do not have an audit committee, compensation committee
or nominating committee. We are currently in the process of identifying
independent audit committee members, including a financial expert and we expect
to continue this process in 2007.
EXECUTIVE
COMPENSATION
The
following Summary Compensation Table sets forth the compensation earned by
the
Company's Chief Executive Officer and the other most highly compensated
executive officer(s) who were serving as such as of December 31, 2005, whose
aggregate compensation for the 2005 fiscal year exceeded $100,000 for services
rendered in all capacity for that fiscal year.
|
|
ANNUAL
COMPENSATION
|
|
LONG-TERM
COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
AWARDS
|
|
PAYOUTS
|
|
NAME
AND PRINCIPAL
POSITION
|
|
YEAR
|
|
SALARY
($)
|
|
BONUS
($)
|
|
OTHER
ANNUAL
COMPENSATION
($)
|
|
RESTRICTED
STOCK
AWARD(S)
($)
|
|
SECURITIES
UNDERLYING
OPTIONS/
SARS
(#)
|
|
LTIP
PAYOUTS
($)
|
|
ALL
OTHER
COMPEN-
SATION
($)
|
|
(A)
|
|
(B)
|
|
(C)
|
|
(D)
|
|
(E)
|
|
|
|
(G)
|
|
(H)
|
|
(I)
|
|
David
Duquette, Chairman of the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board,
President
|
|
|
2002
|
|
$
|
193,800
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Duquette, Chairman of the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board,
President and Director
|
|
|
2003
|
|
$
|
127,200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400,000
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Duquette, Chairman of the
|
|
|
2004
|
|
$
|
180,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board,
President and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Duquette, Chairman of the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board,
President and Director
|
|
|
2005
|
|
$
|
101,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number
of securities underlying options/SARs granted (#)
|
|
Percent
of total options/SARs granted to employees in fiscal
year
|
|
Exercise
or base price ($/Share)
|
|
Expiration
date
|
|
David
Duquette, CEO
|
|
|
400,000
|
|
|
0
|
%
|
$
|
0.25
|
|
|
9/12/08
|
|
Josef
Czikmantori, Director
|
|
|
150,000
|
|
|
0
|
%
|
$
|
0.25
|
|
|
9/12/08
|
|
There
were no options/SAR grants in 2004 or 2005.
AGGREGATED
OPTION EXERCISE IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The
following table sets forth information concerning exercises of stock options
during the year ended December 31, 2005, by each of the Named Executive Officers
and the value of in-the-money unexercised options at December 31,
2005.
NAME
|
|
SHARES
ACQUIRED
ON
EXERCISE
(#)
|
|
|
|
NUMBER
OF SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
AT FISCAL YEAR END
|
|
VALUE
OF UNEXERCISED IN-THE
MONEY
OPTIONS AT FISCAL YEAR END
|
|
|
|
|
|
|
|
EXERCISABLE/UNEXERCISABLE
(#)
|
|
EXERCISABLE/UNEXERCISABLE
($) (2)
|
|
David
Duquette, CEO
|
|
|
400,000
/ 0
|
|
$
|
0.00
|
|
|
400,000
/ 0
|
|
|
148,000
/ 0
|
|
Josef
Czikmantori, Director
|
|
|
150,000
/ 0
|
|
$
|
0.00
|
|
|
150,000
/ 0
|
|
|
55,500
/ 0
|
|
(1)
Value
realized is based on estimated fair market value of Common Stock on the date
of
exercise minus the exercise price.
(2)
Value
is based on estimated fair market value of Common Stock as of December 31,
2005
($0.62) minus the exercise price.
None
of
our Named Executive Officers exercised any of their options during
2005.
LONG-TERM
INCENTIVE PLANS
As
of
December 31, 2005 there is no long-term incentive plan.
STOCK
OPTIONS AND WARRANTS
Under
the
terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase
an aggregate of 1,000,000 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. The options granted
generally vest evenly over a one-year period, beginning from the date of
grant.
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.
During
the year ended December 31, 2005, the Company did not grant any warrants
or
stock options.
The
following is a status of the stock options and warrants outstanding at December
31, 2005 and the changes during the two years then
ended:
|
|
Year
Ended December 31, 2005
|
|
Year
Ended December 31, 2004
|
|
|
|
|
|
Weighted
Average
Price
|
|
|
|
|
|
Outstanding,
beginning of year
|
|
|
1,711,583
|
|
$
|
1.75
|
|
|
1,821,583
|
|
$
|
2.34
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
0.65
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Cancelled/Terminated
|
|
|
(243,083
|
)
|
|
(9.88
|
)
|
|
(135,000
|
)
|
|
(9.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable, end of year
|
|
|
1,468,500
|
|
$
|
0.40
|
|
|
1,711,583
|
|
$
|
1.75
|
|
The
following table summarizes information related to stock options outstanding
at
December 31, 2005:
EQUITY
COMPENSATION PLAN INFORMATION
|
|
|
|
|
|
NUMBER
OF SECURITIES REMAINING AVAILABLE FOR
|
|
|
|
NUMBER
OF SECURITIES TO BE ISSUED UPON EXERCISE OF
|
|
WEIGHTED-AVERAGE
EXERCISE PRICE OF
|
|
FUTURE
ISSUANCE UNDER EQUITY COMPENSATION PLANS
|
|
|
|
OUTSTANDING
OPTIONS,
|
|
OUTSTANDING
OPTIONS,
|
|
(EXCLUDING
SECURITIES
|
|
|
|
WARRANTS
AND RIGHTS
|
|
WARRANTS
AND RIGHTS
|
|
REFLECTED
IN COLUMN(A))
|
|
|
|
(A)
|
|
(B)
|
|
(C)
|
|
Equity
compensation plans approved by
|
|
|
|
|
|
|
|
security
holders
|
|
|
1,413,500
|
|
|
0.39
|
|
|
936,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved
|
|
|
|
|
|
|
|
|
|
|
by
security holders
|
|
|
55,000
|
|
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,468,500
|
|
|
—
|
|
|
936,500
|
|
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.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
NOTES
RECEIVABLE FROM STOCKHOLDERS
As
of
December 31, 2005, the Company had loans to two stockholders totaling $505,639,
including accrued interest. 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. The stockholders have shown the ability to repay the loans and intend
on
repaying such amounts in the future. For the years ended December 31, 2005,
2004, 2003 and 2002, total interest income from notes receivable from
stockholders' approximated $20,000, $22,000, $12,000 and $6,000,
respectively.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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.
|
|
High
|
|
Low
|
|
FISCAL
YEAR 2006
|
|
|
|
|
|
December
31
|
|
$
|
0.40
|
|
|
0.16
|
|
September
30
|
|
|
0.66
|
|
|
0.38
|
|
June
30
|
|
|
1.21
|
|
|
0.45
|
|
March
31, 2006
|
|
$
|
0.87
|
|
|
0.53
|
|
|
|
|
|
|
|
|
|
FISCAL
YEAR 2005
|
|
|
|
|
|
|
|
December
31
|
|
$
|
0.77
|
|
|
0.38
|
|
September
30
|
|
|
0.73
|
|
|
0.21
|
|
June
30
|
|
|
0.33
|
|
|
0.13
|
|
March
31
|
|
|
0.51
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
FISCAL
YEAR 2004
|
|
|
|
|
|
|
|
December
31
|
|
$
|
0.29
|
|
|
0.06
|
|
September
30
|
|
|
0.32
|
|
|
0.15
|
|
June
30
|
|
|
0.65
|
|
|
0.18
|
|
March
31
|
|
|
0.85
|
|
|
0.40
|
|
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 our 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, 2006, we had approximately 1,500 shareholders of our common stock.
This figure does not include beneficial holders or common stockholder's nominee
co-trust name, as we cannot accurately estimate the number of these beneficial
holders.
The
transfer agent and registrar for our common stock is U.S. Stock Transfer, Los
Angeles, California.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership
of
our common stock as of December 31, 2006:
|
·
|
by
each person who is known by us to beneficially own more than 5% of
our
common stock;
|
|
·
|
by
each of our officers and directors; and
|
|
·
|
by
all of our officers and directors as a
group.
|
Unless
otherwise indicated, the shareholders listed in the table have sole voting
and
investment power with respect to the shares indicated.
|
|
|
|
PERCENTAGE
OF
|
|
NAME
OF BENEFICIAL OWNER
|
|
NO.
OF SHARES(1)
|
|
OWNERSHIP
(1)
|
|
|
|
|
|
|
|
David
Duquette (2)
|
|
|
2,433,334
|
|
|
20
|
%
|
Josef
Czikmantori (3)
|
|
|
1,150,000
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
Officers
and Directors as a Group (2 persons)
|
|
|
3,583,334
|
|
|
29
|
%
|
The
securities "beneficially owned" by a person are determined in accordance with
the definition of "beneficial ownership" set forth in the rules and regulations
promulgated under the Securities Exchange Act of 1934. Beneficially owned
securities may include securities owned by and for, among others, the spouse
and/or minor children of an individual and any other relative who has the same
home as such individual. Beneficially owned securities may also include other
securities as to which the individual has or shares voting or investment power
or which such person has the right to acquire within 60 days of December 31,
2006 pursuant to the conversion of convertible equity, exercise of options,
or
otherwise. Beneficial ownership may be disclaimed as to certain of the
securities.
(1)
Based
on 11,639,660 shares of common stock outstanding as of December 31,
2006.
(2)
Includes options to purchase 400,000 shares (ISOP) which are exercisable at
a
price of $0.25 and which expire on September 12, 2008 and options to purchase
1,000,000 shares (ISOP) which are exercisable at a price of $0.20 and which
expires on November 11, 2011.
(3)
Includes options to purchase 150,000 shares (ISOP) which are exercisable at
a
price of $0.25 and which expire on September 12, 2008 and options to purchase
500,000 shares (ISOP) which are exercisable at a price of $0.20 and which
expires on November 11, 2011.
SELLING
STOCKHOLDERS
The
table
below sets forth information concerning the resale of the shares of common
stock
by the selling stockholders. We will not receive any proceeds from the resale
of
the common stock by the selling stockholders. We will receive proceeds from
the
exercise of the warrants. Assuming all the shares registered below are sold
by
the selling stockholders, none of the selling stockholders will continue to
own
any shares of our common stock.
The
following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common
stock
each person will own after the offering, assuming they sell all of the shares
offered.
Name
|
|
Beneficial
Ownership Before the Offering (1)
|
|
Percentage
of Common Stock Owned before the Offering (1)
|
|
Shares
of Common Stock Included in the Prospectus (2)
|
|
Beneficial
Ownership after the Offering(3)
|
|
Percentage
of Common Stock Owned after the Offering (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motivated
Minds, LLC (4)
|
|
|
135,000
|
|
|
1.15
|
%
|
|
135,000
|
|
|
-0-
|
|
|
-0-
|
|
CAMOFI
Master LDC (5)
|
|
|
580,819
|
|
|
4.99
|
%
|
|
3,850,000
|
|
|
-0-
|
|
|
-0-
|
|
Ascendiant
Securities, LLC (6)
|
|
|
250,000
|
|
|
2.14
|
%
|
|
250,000
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
4,235,000
|
|
|
|
|
|
|
|
*Less
than 1%
(1)
Applicable percentage ownership is based on 11,639,660 shares of common stock
issued as of December 31, 2006. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common stock
that are currently exercisable or exercisable within 60 days of December 31,
2006 are deemed to be beneficially owned by the person holding such securities
for the purpose of computing the percentage of ownership of such person, but
are
not treated as outstanding for the purpose of computing the percentage ownership
of any other person.
(2)
The
actual number of shares of common stock offered in this prospectus, and included
in the registration statement of which this prospectus is a part, includes
such
additional number of shares of common stock as may be issued or issuable upon
conversion of the convertible notes
(3)
Beneficial ownership after the offering assumes that all securities registered
will be sold and that all shares of common stock underlying outstanding warrants
will be issued.
(4)
Ira
Gaines, the Managing Member, holds final voting and investment power over
securities owned by Motivated Minds.
Includes
Represents 30,000 shares of common stock issued pursuant to the Series A
Convertible Note and 105,000 shares of common stock issued as consideration
for
extending the due date of the Series A Convertible Note.
The
Selling Stockholder is not a registered broker-dealer under Section 15 of the
Securities Exchange Act of 1934, as amended.
(5)
Richard Smithline serves as a director of CAMOFI Master Fund LDC and holds
final
voting and investment power over securities owned by it. Represents 3,850,000
shares issuable for conversion of principal on 12% Senior Convertible Note
dated
February 28, 2006 (the “Senior Convertible Note”), representing approximately
33% of the outstanding stock in accordance with the Amended and Restated
Registration Rights Agreement dated December 19, 2006.The Selling Stockholder
is
not a registered broker-dealer under Section 15 of the Securities Exchange
Act
of 1934, as amended.
(6)
Includes 250,000 shares of common stock received as compensation for placement
agency services in connection with the CAMOFI Purchase Agreement. Bradley J
Wilhite, the Managing Director, holds final voting and investment power over
the
securities owned by the Selling Stockholder.
Ascendiant
Securities, LLC is a registered broker-dealer under Section 15 of the Securities
Exchange Act of 1934, as amended.
DESCRIPTION
OF SECURITIES
COMMON
STOCK
The
authorized capital stock of the Company includes 50,000,000 shares of $.10
par
value Common Stock. All shares have equal voting rights. Voting rights are
not
cumulative, and, therefore, the holders of more than 50% of the Common Stock
of
the Company could, if they chose to do so, elect all of the
Directors.
Upon
liquidation, dissolution or winding up of the Company, the assets of the
Company, after the payment of liabilities and any distributions to the holders
of outstanding shares of Series C Convertible Preferred Stock, will be
distributed pro rata to the holders of the Common Stock. The holders of the
Common Stock do not have preemptive rights to subscribe for any securities
of
the Company and have no right to require the Company to redeem or purchase
their
shares.
Holders
of Common Stock are entitled to share equally in dividends when, as and if
declared by the Board of Directors of the Company, out of funds legally
available therefor. The Company has not paid any cash dividends on its Common
Stock, and it is unlikely that any such dividends will be declared in the
foreseeable future.
PREFERRED
STOCK
The
Company has authority to issue 15,075,000 shares of preferred stock, $1.00
par
value and 75,000 shares of preferred stock, $25 par value. The preferred stock
may be issued in series from time to time with such designation, rights,
preferences and limitations as the Board of Directors of the Company may
determine by resolution. The rights, preferences and limitations of separate
series of preferred stock may differ with respect to such matters as may be
determined by the Board of Directors, including, without limitation, the rate
of
dividends, method and nature of payment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions (if any), conversion
rights (if any), and voting rights. The potential exists, therefore, that
preferred stock might be issued which would grant dividend preferences and
liquidation preferences to preferred shareholders. Unless the nature of a
particular transaction and applicable statutes require such approval, and
subject to the required approval of the Series C Preferred Stockholders for
issuances of preferred stock which has liquidation or dividend rights senior
to
theirs, the Board of Directors has the authority to issue these shares without
shareholder approval. The issuance of preferred stock may have the affect of
delaying or preventing a change in control of the Company without any further
action by shareholders.
SERIES
B CONVERTIBLE PREFERRED STOCK
The
authorized capital stock of the Company includes 15,150,000 shares of preferred
stock of which 15,000,000 shares were designated as Series B 5% Convertible
Preferred Stock. Holders of the Preferred Shares will receive, when as and
if
declared by the Board of Directors, a dividend of $1.25 share per annum payable
semi-annually in cash. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of the
Series B Convertible Preferred Stock are entitled to receive out of the assets
of the Company available for distribution to its stockholders, before any
payment or distribution shall be made on the Common Stock or on the shares
of
the Series D Preferred Stock, an amount per share equal to $25.00. The holders
of Series B Convertible Preferred Stock have no voting rights except that any
change to the rights, preference and privilege thereof requires the approval
of
2/3 in liquidation amount of the holders .Each share of the Series B Convertible
Preferred Stock may be converted at any time into 16.667 shares of the Company's
Common Stock. The Conversion Ratio will be subject to adjustment in the event
of
a stock split of, stock dividend on, or a subdivision, combination or
recapitalization of the Common Stock.
SERIES
C 5% CONVERTIBLE PREFERRED STOCK
The
authorized capital stock of the Company includes 15,150,000 shares of preferred
stock of which 75,000 shares were designated as Series C 5% Convertible
Preferred Stock. Holders of the Preferred Shares will receive, when as and
if
declared by the Board of Directors, a dividend of $1.25 share per annum payable
semi-annually in cash. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of the
Series C Convertible Preferred Stock are entitled to receive out of the assets
of the Company available for distribution to its stockholders, before any
payment or distribution shall be made on the Common Stock or on the shares
of
the Series C Preferred Stock, an amount per share equal to $25.00. The holders
of Series C 5% Convertible Preferred Stock have no voting rights except that
any
change to the rights, preference and privilege thereof requires the approval
of
2/3 in liquidation amount of the holders .
Each
share of the Series C Convertible Preferred Stock may be converted at any time
into 16.667 shares of the Company's Common Stock representing a Common Stock
purchase price of $1.50 per share. The Conversion Ratio will be subject to
adjustment in the event of a stock split of, stock dividend on, or a
subdivision, combination or recapitalization of the Common Stock. The Preferred
Shares will be subject to mandatory conversion on the effective date of the
registration statement covering the resale of the Common Shares.
SERIES
D 5% CONVERTIBLE PREFERRED STOCK
The
authorized capital stock of the Company includes 15,150,000 shares of preferred
stock of which 75,000 shares were designated as Series D 5% Convertible
Preferred Stock. Subject to Delaware law, holders of the Preferred Shares will
receive a dividend of $1.25 share per annum payable semi-annually in cash
provided that no payment may be made unless and until all dividends accrued
on
the Series C Preferred Stock have been paid. In the event of any voluntary
or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, the holders of the Series D Convertible Preferred Stock are entitled
to
receive out of the assets of the Company available for distribution to its
stockholders, before any payment or distribution shall be made on the Common
Stock (but only after payment on the Series C Preferred Stock), an amount per
share equal to $25.00. The holders of Series D 5% Convertible Preferred Stock
have the right to vote with the holders of the Common Stock on all matters
on an
as converted basis voting rights except that any change to the rights,
preference and privilege thereof will require the approval of 2/3 in liquidation
amount of the holders.
Each
share of the Series D Convertible Preferred Stock may be converted at any time
into 50 shares of the Company's Common Stock representing a Common Stock
purchase price of $.50 per share. The Conversion Ratio will be subject to
adjustment in the event of a stock split of, stock dividend on, or a
subdivision, combination or recapitalization of the Common Stock. Additionally,
the Conversion Ratio will be adjusted if the Company in the future issues shares
of Common Stock below $.50 or securities convertible into Common Stock with
an
exercise conversion price per share below $.50. Any adjustment will be on a
"weighted average" basis. The Preferred Shares will be subject to mandatory
conversion on the effective date of the registration statement covering the
resale of the Common Shares. The holders of the Series D Convertible Preferred
Stock will share ratably with the holders of the Series C Preferred Stock upon
liquidation, dissolution or winding up of the affairs of the
Company.
COMMON
STOCK PURCHASE WARRANTS
We
currently have 4,903,728 common stock purchase warrants outstanding. The common
stock purchase warrants are each exercisable into one share of common stock
at
the holder's option at various exercise prices and for various periods of
duration.
TRANSFER
AGENT
Our
transfer agent is US Stock Transfer Corporation and their telephone number
is
(818) 502-1404.
PLAN
OF DISTRIBUTION
Each
Selling Stockholder and any of their pledgees, assignees and
successors-in-interest selling shares received from the named selling
stockholder as a gift, partnership distribution or other non-sale-related
transfer after the date of this prospectus (all of whom may be a selling
stockholder) may sell the common stock offered by this prospectus from time
to
time on any stock exchange or automated interdealer quotation system on which
the common stock is listed or quoted at the time of sale, in the
over-the-counter market, in privately negotiated transactions or otherwise,
at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at prices otherwise
negotiated. These sales may be at fixed or negotiated prices. A Selling
Stockholder may use any one or more of the following methods when selling
shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits Purchaser;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the date of this prospectus;
|
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of
sale;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. Each
Selling Stockholder does not expect these commissions and discounts relating
to
its sales of shares to exceed what is customary in the types of transactions
involved.
In
connection with the sale of our common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of
the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed us
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute the Common Stock.
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
Because
Selling Stockholders may be deemed to be "underwriters" within the meaning
of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold
under Rule 144 rather than under this prospectus. Each Selling Stockholder
has
advised us that they have not entered into any agreements, understandings or
arrangements with any underwriter or broker-dealer regarding the sale of the
resale shares. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the Selling
Stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the Selling Stockholders without registration and
without regard to any volume limitations by reason of Rule 144(e) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to the prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to our common stock for a period of two business
days prior to the commencement of the distribution. In addition, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may limit
the timing of purchases and sales of shares of our common stock by the Selling
Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time
of
the sale.
LEGAL
MATTERS
Sichenzia
Ross Friedman Ference LLP, New York, New York will issue an opinion with respect
to the validity of the shares of common stock being offered hereby.
EXPERTS
Squar,
Milner, Peterson, Miranda &
Williamson, LLP (formerly, Squar, Milner, Miranda & Williamson,
LLP) has audited, as set forth in their report thereon appearing elsewhere
herein, our financial statements as of December 31, 2005, and for the years
ended December 31, 2005 and 2004 that appear in the prospectus. The financial
statements referred to above are included in this prospectus with reliance
upon
the auditors' opinion based on their expertise in accounting and
auditing.
AVAILABLE
INFORMATION
We
have
filed a registration statement on Form SB-2 under the Securities Act of 1933,
as
amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of our company filed as part of the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance
with
the rules and regulations of the Securities and Exchange Commission. We are
subject to the informational requirements of the Securities Exchange Act of
1934
that require us to file reports, proxy statements and other information with
the
Securities and Exchange Commission. Such reports, proxy statements and other
information may be inspected at public reference facilities of the SEC at 100
F
Street N.E., Washington D.C. 20549. Copies of such material can be obtained
from
the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street
N.W., Washington, D.C. 20549 at prescribed rates. The public could obtain
information on the operation of the public reference room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. Because we file documents
electronically with the SEC, you may also obtain this information by visiting
the SEC's Internet website at http://www.sec.gov.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
Articles of Incorporation, as amended and restated, provide to the fullest
extent permitted by Section 145 of the General Corporation Law of the State
of
Delaware, that our directors or officers shall not be personally liable to
us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended and restated, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation,
as
amended, are necessary to attract and retain qualified persons as directors
and
officers. Our By Laws also provide that the Board of Directors may also
authorize us to indemnify our employees or agents, and to advance the reasonable
expenses of such persons, to the same extent, following the same determinations
and upon the same conditions as are required for the indemnification of and
advancement of expenses to our directors and officers. As of the date of this
Registration Statement, the Board of Directors has not extended indemnification
rights to persons other than directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, we have
been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
of
1933 and is, therefore, unenforceable.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Audited
Financial Statements for the Years ended December 31, 2005 and 2004
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheet as of December 31, 2005
|
F-3
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2005 and
2004
|
F-4
|
|
|
Consolidated
Statements of Stockholders' Equity (Deficit) for the years ended
December
31, 2005 and 2004
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005 and
2004
|
F-7
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
|
|
Interim
Financial Statements for the Three and Nine Month Periods ended September
30, 2006 and 2005 (Unaudited)
|
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2006
(Unaudited)
|
F-31
|
|
|
Condensed
Consolidated Statements of Operations for the three and nine months
ended
September
30, 2006 and 2005 (Unaudited)
|
F-32
|
|
|
Condensed
Consolidated Statements of Cash Flows for the three and nine months
ended
September
30, 2006 and 2005 (Unaudited)
|
F-33
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
F-34
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders
New
Century Companies, Inc. and Subsidiary
We
have
audited the accompanying consolidated balance sheet of New Century Companies,
Inc. and Subsidiary (the "Company") as of December 31, 2005, 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, 2005. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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. 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, 2005, and the results of their operations
and
their cash flows for each of the two years in the period ended December 31,
2005
in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has negative working capital
of
approximately $2,083,000, an accumulated deficit of approximately $6,959,000
and
is in default on certain notes payable. 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.
/s/
SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP
April
7,
2006
Newport
Beach, California
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE
SHEET
December
31, 2005
ASSETS
|
|
|
|
Current
Assets
|
|
|
|
Contract
receivables
|
|
$
|
287,569
|
|
Inventories,
net
|
|
|
928,947
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
417,755
|
|
Prepaid
expenses and other current assets
|
|
|
1,560
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,635,831
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
411,651
|
|
|
|
|
|
|
|
|
$
|
2,047,482
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Bank
overdraft
|
|
$
|
27,649
|
|
Accounts
payable and accrued expenses
|
|
|
1,649,080
|
|
Dividends
payable
|
|
|
565,875
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
501,384
|
|
Notes
payable
|
|
|
974,816
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,718,804
|
|
|
|
|
|
|
Notes
Payable, net of current portion
|
|
|
36,000
|
|
|
|
|
|
|
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, 28,980 shares issued and
|
|
|
|
|
outstanding
(liquidation preference of $1,187,000)
|
|
|
28,980
|
|
Cumulative,
convertible, Series D preferred stock, $25 par value,
|
|
|
|
|
75,000
shares authorized, 11,640 shares issued and outstanding
|
|
|
|
|
(liquidation
preference of $394,000)
|
|
|
291,000
|
|
Common
stock, $0.10 par value, 50,000,000 shares authorized;
|
|
|
|
|
10,697,266
shares issued and outstanding
|
|
|
1,069,727
|
|
Subscriptions
receivable
|
|
|
(462,500
|
)
|
Notes
receivable from stockholders
|
|
|
(505,639
|
)
|
Deferred
consulting fees
|
|
|
(254,717
|
)
|
Additional
paid-in capital
|
|
|
5,085,274
|
|
Accumulated
deficit
|
|
|
(6,959,447
|
)
|
|
|
|
|
|
Total
stockholders' deficit
|
|
|
(1,707,322
|
)
|
|
|
|
|
|
|
|
$
|
2,047,482
|
|
See
accompanying notes to the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
CONTRACT
REVENUES
|
|
$
|
6,038,459
|
|
$
|
4,605,813
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
4,323,489
|
|
|
5,062,799
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT (LOSS)
|
|
|
1,714,970
|
|
|
(456,986
|
)
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
Consulting
and other compensation
|
|
|
579,921
|
|
|
319,700
|
|
Salaries
and related
|
|
|
218,249
|
|
|
245,688
|
|
Selling,
general and administrative
|
|
|
350,787
|
|
|
764,055
|
|
|
|
|
|
|
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
1,148,957
|
|
|
1,329,443
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
566,013
|
|
|
(1,786,429
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Gain
on forgiveness of accounts and notes payable
|
|
|
318,973
|
|
|
544,318
|
|
Interest
income
|
|
|
19,765
|
|
|
1,020
|
|
Interest
expense
|
|
|
(235,592
|
)
|
|
(181,468
|
)
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
103,146
|
|
|
363,870
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE PROVISION FOR INCOME
TAXES
|
|
|
669,159
|
|
|
(1,422,559
|
)
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
800
|
|
|
800
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
668,359
|
|
$
|
(1,423,359
|
)
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS
|
|
$
|
512,059
|
|
$
|
(1,791,594
|
)
|
|
|
|
|
|
|
|
|
Basic
net income (loss) available to common
stockholders per common share
|
|
$
|
0.06
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) available to common
stockholders per common share
|
|
$
|
0.05
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares
outstanding
|
|
|
9,186,987
|
|
|
7,038,209
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares
outstanding
|
|
|
9,836,987
|
|
|
7,038,209
|
|
See
accompanying notes to the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For
the Years Ended December 31, 2005 and 2004
|
|
Preferred
Stock,
Series B
|
|
Preferred
Stock,
Series C
|
|
Preferred
Stock,
Series D
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balance,
January 1, 2004
|
|
|
—
|
|
$
|
—
|
|
|
63,600
|
|
$
|
63,600
|
|
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of convertible preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
at a discount
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,640
|
|
|
591,000
|
|
Isssuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consulting
services rendered
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization
of deferred consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
—
|
|
|
—
|
|
|
(2,820
|
)
|
|
(2,820
|
)
|
|
—
|
|
|
—
|
|
Accumulated
dividends on preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest
on notes receivable from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
—
|
|
|
—
|
|
|
60,780
|
|
|
60,780
|
|
|
23,640
|
|
|
591,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with debt extention
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Isssuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consulting
services
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Isssuance
of common stock as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
penalty
for not registering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
shares
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with legal settlment
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accrued
dividends payable
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
—
|
|
|
—
|
|
|
(31,800
|
)
|
|
(31,800
|
)
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,000
|
)
|
|
(300,000
|
)
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with settlement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with settlement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
payable
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization
of deferred consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest
on notes receivable from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
—
|
|
$
|
—
|
|
|
28,980
|
|
$
|
28,980
|
|
|
11,640
|
|
$
|
291,000
|
|
|
|
Common
Stock
|
|
Additional
Paid In Capital
|
|
Notes
Receivable From Stockholders
|
|
Deferred
Consulting Fees
|
|
|
|
Shares
|
|
Amount
|
|
Balance,
January 1, 2004
|
|
|
6,895,265
|
|
|
689,527
|
|
$
|
3,809,194
|
|
$
|
(466,159
|
)
|
$
|
(109,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of convertible preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
at a discount
|
|
|
—
|
|
|
—
|
|
|
123,660
|
|
|
—
|
|
|
—
|
|
Isssuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consulting
services rendered
|
|
|
350,000
|
|
|
35,000
|
|
|
130,000
|
|
|
—
|
|
|
(10,000
|
)
|
Amortization
of deferred consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111,480
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
47,000
|
|
|
4,700
|
|
|
(1,880
|
)
|
|
—
|
|
|
—
|
|
Accumulated
dividends on preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest
on notes receivable from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,765
|
)
|
|
—
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
7,292,265
|
|
|
729,227
|
|
|
4,060,974
|
|
|
(485,924
|
)
|
|
(8,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with debt extention
|
|
|
250,000
|
|
|
25,000
|
|
|
22,500
|
|
|
—
|
|
|
—
|
|
Isssuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consulting
services
|
|
|
1,050,000
|
|
|
105,000
|
|
|
414,000
|
|
|
—
|
|
|
(519,000
|
)
|
Isssuance
of common stock as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
penalty
for not registering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
shares
|
|
|
300,000
|
|
|
30,000
|
|
|
60,000
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with legal settlment
|
|
|
100,000
|
|
|
10,000
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
Accrued
dividends payable
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
530,001
|
|
|
53,000
|
|
|
(21,200
|
)
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
600,000
|
|
|
60,000
|
|
|
240,000
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with settlement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt
|
|
|
500,000
|
|
|
50,000
|
|
|
260,000
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with settlement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
payable
|
|
|
75,000
|
|
|
7,500
|
|
|
39,000
|
|
|
—
|
|
|
—
|
|
Amortization
of deferred consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
272,616
|
|
Interest
on notes receivable from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,715
|
)
|
|
—
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
10,697,266
|
|
$
|
1,069,727
|
|
$
|
5,085,274
|
|
$
|
(505,639
|
)
|
$
|
(254,717
|
)
|
|
|
Subscriptions
Receivable
|
|
(Accumulated
Deficit)
|
|
Total
Stockholders'
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2004
|
|
$
|
(462,500
|
)
|
$
|
(5,679,912
|
)
|
$
|
(2,156,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of convertible preferred
|
|
|
|
|
|
|
|
|
|
|
stock
at a discount
|
|
|
—
|
|
|
(153,660
|
)
|
|
561,000
|
|
Isssuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
consulting
services rendered
|
|
|
—
|
|
|
—
|
|
|
155,000
|
|
Amortization
of deferred consulting
|
|
|
|
|
|
|
|
|
|
|
fees
|
|
|
—
|
|
|
—
|
|
|
111,480
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accumulated
dividends on preferred
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
—
|
|
|
(214,575
|
)
|
|
(214,575
|
)
|
Interest
on notes receivable from
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
—
|
|
|
—
|
|
|
(19,765
|
)
|
Net
loss
|
|
|
—
|
|
|
(1,423,359
|
)
|
|
(1,423,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
(462,500
|
)
|
|
(7,471,506
|
)
|
|
(2,986,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
connection
with debt extention
|
|
|
—
|
|
|
—
|
|
|
47,500
|
|
Isssuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
consulting
services
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Isssuance
of common stock as a
|
|
|
|
|
|
|
|
|
|
|
penalty
for not registering
|
|
|
|
|
|
|
|
|
|
|
preferred
shares
|
|
|
—
|
|
|
—
|
|
|
90,000
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
connection
with legal settlment
|
|
|
—
|
|
|
—
|
|
|
20,000
|
|
Accrued
dividends payable
|
|
|
—
|
|
|
(156,300
|
)
|
|
(156,300
|
)
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
connection
with the conversion
|
|
|
|
|
|
|
|
|
|
|
of
preferred stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
connection
with settlement of
|
|
|
|
|
|
|
|
|
|
|
debt
|
|
|
—
|
|
|
—
|
|
|
310,000
|
|
Issuance
of common stock in
|
|
|
|
|
|
|
|
|
|
|
connection
with settlement of
|
|
|
|
|
|
|
|
|
|
|
accounts
payable
|
|
|
—
|
|
|
—
|
|
|
46,500
|
|
Amortization
of deferred consulting
|
|
|
|
|
|
|
|
|
|
|
fees
|
|
|
—
|
|
|
—
|
|
|
272,616
|
|
Interest
on notes receivable from
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
—
|
|
|
—
|
|
|
(19,715
|
)
|
Net
income
|
|
|
—
|
|
|
668,359
|
|
|
668,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
$
|
(462,500
|
)
|
$
|
(6,959,447
|
)
|
$
|
(1,707,322
|
)
|
See
accompanying notes to the consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
668,359
|
|
$
|
(1,423,359
|
)
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
194,300
|
|
|
276,302
|
|
Gain
on settlement of legal dispute
|
|
|
(275,000
|
)
|
|
—
|
|
Gain
on forgiveness of accounts payable
|
|
|
(102,597
|
)
|
|
(544,318
|
)
|
Gain
on forgiveness of notes payable
|
|
|
(216,375
|
)
|
|
—
|
|
Amortization
of debt discount
|
|
|
47,500
|
|
|
—
|
|
Amortization
of deferred consulting fees
|
|
|
272,616
|
|
|
111,480
|
|
Bad
debt expense (credit)
|
|
|
(5,334
|
)
|
|
39,000
|
|
Inventory
reserve
|
|
|
—
|
|
|
186,352
|
|
Estimated
fair market value of common stock issued for
|
|
|
|
|
|
|
|
consulting
services
|
|
|
—
|
|
|
155,000
|
|
Estimated
fair market value of common stock issued for
|
|
|
|
|
|
|
|
partial
legal settlement
|
|
|
20,000
|
|
|
—
|
|
Interest
income on notes receivable from stockholders
|
|
|
(19,715
|
)
|
|
(19,765
|
)
|
Estimated
fair market value of common stock issued for
|
|
|
|
|
|
|
|
penalty
on failure to register convertible preferred stock
|
|
|
90,000
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Contracts
receivable
|
|
|
(554,368
|
)
|
|
108,584
|
|
Inventories
|
|
|
51,295
|
|
|
(9,651
|
)
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
(165,923
|
)
|
|
68,700
|
|
Prepaid
expenses and other current assets
|
|
|
—
|
|
|
24,131
|
|
Accounts
payable and accrued expenses
|
|
|
169,887
|
|
|
406,298
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
(259,002
|
)
|
|
192,772
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(84,357
|
)
|
|
(428,474
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
—
|
|
|
(1,396
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
—
|
|
|
(1,396
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
|
27,649
|
|
|
(124,558
|
)
|
Proceeds
of issuance of notes payable
|
|
|
—
|
|
|
80,816
|
|
Proceeds
from issuance of preferred stock
|
|
|
—
|
|
|
521,000
|
|
Principal
repayments on obligations under capital lease
|
|
|
(72,379
|
)
|
|
(74,270
|
)
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(44,730
|
)
|
|
402,988
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(129,087
|
)
|
|
(26,882
|
)
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
129,087
|
|
|
155,969
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
—
|
|
$
|
129,087
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
discount on note payable extension
|
|
$
|
47,500
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Accrued
cumulative dividends on preferred stock
|
|
$
|
156,300
|
|
$
|
214,575
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
$
|
331,800
|
|
$
|
4,700
|
|
|
|
|
|
|
|
|
|
Common
stock issued for settlement of notes payable
|
|
$
|
310,000
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Common
stock issued for settlement of accounts payable
|
|
$
|
46,500
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Equipment
acquired in legal settlement
|
|
$
|
275,000
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Preferred
stock issued in lieu of accounts payable
|
|
$
|
—
|
|
$
|
40,000
|
|
See
accompanying notes to the consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AND NATURE OF OPERATIONS
New
Century Companies, Inc. and Subsidiary (collectively, the “Company”), a
California corporation, was incorporated March 1996 and is located in Southern
California. The Company provides after-market services, including rebuilding,
retrofitting and remanufacturing of metal cutting machinery.
The
Company currently sells its services by direct sales and through a network
of
machinery dealers across the United States. Its customers are generally medium
to large sized manufacturing companies in various industries where metal cutting
is an integral part of their businesses. The Company grants credit to its
customers who are predominately located in the western United
States.
The
Company trades on the Over-the-Counter Bulletin Board under the symbol
“NCNC.OB.”
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of New Century Companies,
Inc. and its wholly owned subsidiary, New Century Remanufacturing (collectively,
the “Company”). All significant intercompany accounts and transactions have been
eliminated in consolidation.
GOING
CONCERN
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business. As of December 31, 2005, the Company has negative working
capital of approximately $2,083,000, an accumulated deficit of approximately
$6,959,000 and is in default on certain notes payable. These factors, among
others, raise substantial doubt about the Company’s ability to continue as a
going concern. The Company intends to fund operations through anticipated
increased sales and debt and equity financing arrangements which management
believes may be insufficient to fund its capital expenditures, working capital
and other cash requirements for the year ending December 31, 2006. Therefore,
the Company will be required to seek additional funds to finance its long-term
operations. The successful outcome of future activities cannot be determined
at
this time and there is no assurance that if achieved, the Company will have
sufficient funds to execute its intended business plan or generate positive
operating results.
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 (see Note 10).
|
The
consolidated financial statements do not include any adjustments related to
recoverability and classification of assets carrying amounts or the amount
and
classification of liabilities that might result should the Company be unable
to
continue as a going concern.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
GOING
CONCERN (CONTINUED)
During
2004 and 2005, management settled with several vendors and was able to obtain
a
fifty percent reduction in the amounts due to those specific vendors.
Additionally, the Company converted certain notes payable to common stock during
December 2005 resulting in approximately $216,000 of credits to earnings (see
Note 5). As a result, the accompanying consolidated statements of operations
include a gain on forgiveness of accounts and notes payable totaling
approximately $319,000 and $544,000 for the years ended December 31, 2005 and
2004, respectively. The effect on basic and diluted earnings (loss) per share
was $0.03 and $0.08 for the years ended December 31, 2005 and 2004,
respectively.
CONCENTRATIONS
OF CREDIT RISKS
Cash
is
maintained at various financial institutions. The Federal Deposit Insurance
Corporation (“FDIC”) insures accounts at each financial institution for up to
$100,000. At times, cash may be in excess of the FDIC insurance limit of
$100,000. The Company had no uninsured bank balances at December 31,
2005.
The
Company sells products to customers throughout the United States. The Company’s
ability to collect receivables is affected by economic fluctuations in the
geographic areas served by the Company. Although the Company does not obtain
collateral with which to secure its contracts receivable, management
periodically reviews contracts receivable and assesses the financial strength
of
its customers and, as a consequence, believes that the receivable credit risk
exposure could, at times, be material to the financial statements.
During
the year ended December 31, 2004, sales to two customers approximated 19% of
net
sales. No single customer net sales were more than 10% for the year ended
December 31, 2005. Management reviews the collectibility of contract receivables
periodically and believes no allowance for losses was needed at December 31,
2005.
RISKS
AND UNCERTAINTIES
The
Company operates in an industry that is subject to intense competition. The
Company’s operations are subject to significant risks and uncertainties
including financial, operational, technological and other risks associated
with
operating a business including the potential risk of business
failure.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
USE
OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets
and
liabilities and the disclosure of contingent assets and liabilities at the
date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates made by management are,
among others, deferred tax asset valuation allowances, realization of
inventories, collectibility of contracts receivable and the estimation of costs
for long-term construction contracts. Actual results could materially differ
from those estimates.
CASH
AND CASH EQUIVALENTS
The
Company considers all highly liquid fixed income investments with maturities
of
three months or less at the time of acquisition, to be cash equivalents. The
Company had no cash equivalents at December 31, 2005.
INVENTORIES
Inventories
are stated at the lower of cost or net realizable value. Cost is determined
under the first-in, first-out method. Inventories represent cost of work in
process on units not yet under contract. Cost includes all direct material
and
labor, machinery, subcontractors and allocations of indirect overhead. Net
realizable value is based on management’s forecast for sales of the Company’s
products or services in the ensuing years. The industry in which the Company
operates is characterized by technological advancement and change. Should demand
for the Company’s products prove to be significantly less than anticipated, the
ultimate realizable value of the Company’s inventories could be substantially
less than the amount shown in the accompanying consolidated balance sheet.
At
December 31, 2005 and 2004, the Company had inventory reserves approximating
$418,000 and $486,000, respectively.
PROPERTY
AND EQUIPMENT
Property
and equipment are recorded at cost and are depreciated using the straight-line
method over the estimated useful lives of the related assets ranging from three
to five years. Equipment under capital lease obligations are depreciated over
the shorter of the estimated useful life or the term of the lease. Maintenance
and repairs are charged to expense as incurred. Significant renewals and
betterments are capitalized. At the time of retirement or other disposition
of
property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
consolidated statement of operations.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
LONG-LIVED
ASSETS
The
Company accounts for long-lived asset impairments under Statement of Financial
Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 requires a
three-step approach for recognizing and measuring the impairment of assets
to be
held and used. The Company recognizes impairment losses on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than
the assets’ carrying amounts. The impairment loss is measured by comparing the
fair value of the asset to its carrying amount. Fair value is estimated based
on
discounted future cash flows. Assets to be sold must be stated at the lower
of
the assets’ carrying amount or fair value and depreciation is no longer
recognized. The Company believes that no impairment of property and equipment
exists at December 31, 2005.
REVENUE
RECOGNITION
The
Company’s revenues consist of contracts with vendors. 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.
In
December 1999, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition,” as amended and
superseded 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 SEC. Management believes that the Company’s revenue recognition policy
conforms to SAB No. 104. The Company recognizes revenue of contracts pursuant
to
SOP 81-1.
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
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. Costs incurred and revenue earned on contracts in progress
in excess of billings (under billings) is classified as a current asset. Amounts
billed in excess of costs and revenue earned (over billings) are classified
as a
current liability.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
REVENUE
RECOGNITION (CONTINUED)
The
Company accounts for shipping and handling fees and costs in accordance with
Emerging Issues Task Force (“EITF”) Issue No. 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.
WARRANTY
The
Company provides a warranty on certain products sold. Estimated future warranty
obligations related to certain products and services are provided by charges
to
operations in the period in which the related revenue is recognized. At December
31, 2005, the warranty obligation was immaterial to the accompanying
consolidated balance sheet.
ADVERTISING
The
Company expenses the cost of advertising when incurred as selling expense in
the
accompanying consolidated statements of operations. Advertising expenses were
approximately nil and $84,000 for the years ended December 31, 2005 and 2004,
respectively.
RESEARCH
AND DEVELOPMENT COSTS
Research
and development costs are expensed as incurred.
INCOME
TAXES
Under
SFAS 109, “Accounting for Income Taxes,” deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is provided for significant deferred tax assets
when it is more likely than not that such assets will not be
recovered.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
BASIC
AND DILUTED INCOME (LOSS) PER COMMON SHARE
Under
SFAS 128, “Earnings Per Share,” basic earnings per common share is computed by
dividing income (loss) available to common stockholders by the weighted-average
number of common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive
(under the treasury stock method, there were 650,000 and 179,000 additional
potential common shares at December 31, 2005 and 2004,
respectively).
COMPREHENSIVE
INCOME
SFAS
130,
“Reporting Comprehensive Income,” establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. For the years ended December 31, 2005
and
2004, the Company had no items of comprehensive income.
SEGMENTS
OF BUSINESS
SFAS
131,
“Disclosures about Segments of an Enterprise and Related Information,” changes
the way public companies report information about segments of their business
in
their quarterly reports issued to stockholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major customers.
The Company currently operates in one segment.
STOCK
BASED COMPENSATION
The
Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25 (“APB 25”), “Accounting for Stock issued to Employees.” Under the
intrinsic value based method, compensation expense is the excess, if any, of
the
fair value of the stock at the grant date or other measurement date over the
amount an employee must pay to acquire the stock. Compensation expense, if
any,
is recognized over the applicable service period, which is usually the vesting
period.
SFAS
123,
“Accounting for Stock-Based Compensation,” if fully adopted, changes the method
of accounting for employee stock-based compensation plans to the fair value
based method. For stock options and warrants, fair value is determined using
an
option pricing model that takes into account the stock price at the grant date,
the exercise price, the expected life of the option or warrant, stock volatility
and the annual rate of quarterly dividends. Compensation expense, if any, is
recognized over the applicable service period, which is usually the vesting
period.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
STOCK
BASED COMPENSATION (CONTINUED)
The
adoption of the accounting methodology of SFAS 123 is optional and the Company
has elected to continue accounting for stock-based compensation issued to
employees using APB 25; however, pro forma disclosures, as the Company adopted
the cost recognition requirement under SFAS 123, are required to be presented
(see below). For stock-based compensation issued to non-employees, the Company
uses the fair value method of accounting under the provisions of SFAS
123.
Financial
Accounting Standards Board (“FASB”) Interpretation No. 44 (“FIN 44”),
“Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB 25” clarifies the application of APB 25 for (a) the
definition of employee for purpose of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a non compensatory plan, (c) the
accounting consequence for various modifications to the terms of a previously
fixed stock option or award and (d) the accounting for an exchange of stock
compensation awards in a business combination. Management believes that the
Company accounts for transactions involving stock compensation in accordance
with FIN 44.
SFAS
148,
“Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123,” provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
At
December 31, 2005, the Company has one stock-based employee compensation plan
and one stock-based non-employee compensation plan, which are described more
fully in Note 7. There was no employee stock-based compensation cost recognized
in net income (loss) for the years ended December 31, 2005 and 2004.
Additionally, there was no unvested portion of previous grants for which the
requisite service has not been rendered as of December 31, 2005. Accordingly,
the Company had no pro forma expense when applying the fair value recognition
provisions of SFAS 123, as amended, to stock-based employee compensation.
However, the above pro forma effects of applying SFAS 123 are not necessarily
representative of the impact on reported net income (loss) for future years
(see
below).
In
December 2004, the FASB issued SFAS No. 123-R, “Share-Based Payments,” as
subsequently interpreted by SEC Staff Accounting Bulletin No. 107, “Share-Based
Payments,” which replaces SFAS No. 123, and supersedes APB Opinion No. 25. As
originally issued, SFAS 123 established as preferable a fair-value-based method
of accounting for share-based payment transactions with employees. However,
that
pronouncement permitted entities to continue applying the intrinsic-value-based
model of APB Opinion No. 25, provided that the financial statements disclosed
the pro forma net income or loss based on the fair-value method. The Company
will be required to apply SFAS 123-R as of January 1, 2006. Thus, the Company’s
financial statements will reflect an expense for (a) all share-based
compensation arrangements granted beginning January 1, 2006 and for any such
arrangements that are modified, cancelled, or repurchased after that date,
and
(b)
the
portion of previous share-based awards for which the requisite service has
not
been rendered as of that date, based on the grant-date estimated fair value
of
those awards.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The
Company follows SFAS No. 123, “Accounting for Stock-Based Compensation” (as
intepreted by EITF 96-18, “Accounting for Equity Instruments That Are Issued To
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services” ) to account for transactions involving services provided by third
parties where the Company issues equity instruments as part of the total
consideration.
Pursuant
to paragraph 8 of SFAS No. 123, the Company accounts for such transactions
using
the fair value of the consideration received (i.e. the value of the goods or
services) or the fair value of the equity instruments issued, whichever is
more
reliably measurable. The Company applies EITF 96-18, in transactions, when
the
value of the goods and/or services are not readily determinable and (1) the
fair
value of the equity instruments is more reliably measurable and (2) the
counterparty receives equity instruments in full or partial settlement of the
transactions, using the following methodology:
(a)
For
transactions where goods have already been delivered or services rendered,
the
equity instruments are issued on or about the date the performance is complete
(and valued on the date of issuance).
(b)
For
transactions where the instruments are issued on a fully vested, non-forfeitable
basis, the equity instruments are valued on or about the date of the
contract.
(c)
For
any transactions not meeting the criteria in (a) or (b) above, the Company
re-measures the consideration at each reporting date based on its then current
stock value.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
SFAS
107,
“Disclosures About Fair Value of Financial Instruments,” requires disclosure of
fair value information about financial instruments when it is practicable to
estimate that value. The carrying amount of the Company’s cash (bank overdraft),
contracts receivable, accounts payable and accrued expenses, and notes payable
approximates their estimated fair values because related interest rates offered
to the Company approximate current offered rates. The fair value of the notes
receivable from stockholders are not determinable as these transactions are
with
related parties.
SIGNIFICANT
RECENT ACCOUNTING PRONOUNCEMENTS
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,
an amendment of APB Opinion 29, Accounting for Nonmonetary Transactions”. The
amendments made by SFAS No. 153 are based on the principle that exchanges of
nonmonetary assets should be measured using the estimated fair value of the
assets exchanged. SFAS No. 153 eliminates the narrow exception for nonmonetary
exchanges of similar productive assets and replaces it with a broader exception
for exchanges of nonmonetary assets that do not have commercial substance.
A
nonmonetary exchange has “commercial substance” if the future cash flows of the
entity are expected to change significantly as a result of the transaction.
This
pronouncement is effective for nonmonetary exchanges in fiscal periods beginning
after June 15, 2005. The adoption of this pronouncement is not expected to
have
a material impact on the Company’s consolidated financial
statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
SIGNIFICANT
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,”
which replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No.
3, “Reporting Accounting Changes in Interim Financial Statements.” This
pronouncement applies to all voluntary changes in accounting principle, and
revises the requirements for accounting for and reporting a change in accounting
principle. SFAS No. 154 requires retrospective application to prior periods’
financial statements of a voluntary change in accounting principle, unless
it is
impracticable to do so. This pronouncement also requires that a change in the
method of depreciation, amortization, or depletion for long-lived, non-financial
assets be accounted for as a change in accounting estimate that is affected
by a
change in accounting principle. SFAS No. 154 retains many provisions of APB
Opinion No. 20 without change, including those related to reporting a change
in
accounting estimate, a change in the reporting entity, and correction of an
error. The pronouncement also carries forward the provisions of FASB No. 3
which
govern reporting accounting changes in interim financial statements. SFAS No.
154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The Statement does not change the
transition provisions of any existing accounting pronouncements, including
those
that are in a transition phase as of the effective date of SFAS No. 154. The
adoption of this pronouncement is not expected to have a material impact on
the
Company’s future consolidated financial statements.
In
February 2006, the FASB issued SFAS No. 155 entitled “Accounting for Certain
Hybrid Financial Instruments,” an amendment of SFAS No. 133 (“Accounting for
Derivative Instruments and Hedging Activities”) and SFAS No. 140 (“Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”). In this context, a hybrid financial instrument refers to certain
derivatives embedded in other financial instruments. SFAS No. 155 permits fair
value re-measurement of any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation under SFAS No.
133.
SFAS No. 155 also establishes a requirement to evaluate interests in securitized
financial assets in order to identify interests that are either freestanding
derivatives or “hybrids” which contain an embedded derivative requiring
bifurcation. In addition, SFAS No. 155 clarifies which interest/principal strips
are subject to SFAS No. 133, and provides that concentrations of credit risk
in
the form of subordination are not embedded derivatives. SFAS No. 155 amends
SFAS
No. 140 to eliminate the prohibition on a qualifying special-purpose entity
from
holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative. When SFAS No. 155 is adopted, any difference
between the total carrying amount of the components of a bifurcated hybrid
financial instrument and the fair value of the combined “hybrid” must be
recognized as a cumulative-effect adjustment of beginning deficit/retained
earnings.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
SIGNIFICANT
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
SFAS
No.
155 is effective for all financial instruments acquired or issued after the
beginning of an entity’s first fiscal year that begins after September 15, 2006.
Earlier adoption is permitted only as of the beginning of a fiscal year,
provided that the entity has not yet issued any annual or interim financial
statements for such year. Restatement of prior periods is
prohibited.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the American Institute of Certified Public Accountants,
and
the Securities and Exchange Commission did not or are not believed by management
to have a material impact on the Company’s present or future consolidated
financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
CONTRACTS IN PROGRESS
Contracts
in progress at December 31, 2005, which include completed contracts not
completely billed, approximate:
Cumulative
costs to date
|
|
$
|
5,196,000
|
|
Cumulative
gross profit to date
|
|
|
4,380,000
|
|
|
|
|
|
|
Cumulative
revenue earned
|
|
|
9,576,000
|
|
|
|
|
|
|
Less
progress billings to date
|
|
|
(9,659,000
|
)
|
Net
over billings
|
|
$
|
(83,000
|
)
|
The
following approximate amounts are included in the accompanying consolidated
balance sheet under these captions as of December 31, 2005:
Costs
and estimated earnings in excess of
|
|
|
|
billings
on uncompleted contracts
|
|
$
|
418,000
|
|
|
|
|
|
|
Billings
in excess of costs and estimated
|
|
|
|
|
earnings
on uncompleted contracts
|
|
|
(501,000
|
)
|
|
|
|
|
|
Net
over billings
|
|
$
|
(83,000
|
)
|
3.
PROPERTY AND EQUIPMENT
Property
and equipment approximate the following at December 31, 2005:
Machinery
and equipment
|
|
$
|
1,364,000
|
|
Computer
equipment
|
|
|
23,000
|
|
Capital
lease equipment
|
|
|
272,000
|
|
Leasehold
improvements
|
|
|
123,000
|
|
|
|
|
1,782,000
|
|
Less
accumulated depreciation and amortization
|
|
|
(1,370,000
|
)
|
|
|
|
|
|
|
|
$
|
412,000
|
|
At
December 31, 2004, the Company had $206,000 accrued as an estimated legal
settlement for a dispute with a former customer who had purchased a machine
during 2001. Such claim was settled in December 2005. The settlement required
the former customer to return the machine to the Company and the Company to
pay
$275,000 to the former customer. The Company decided to utilize the machine
to
manufacture materials used in its production. As a result, the Company recorded
the $275,000 cost of the machine (which management believes equals the fair
value) as machinery and equipment and recorded a corresponding credit
(reduction) to selling, general and administrative expenses in the accompanying
consolidated statements of operations for the year ended December 31,
2005.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
4.
RELATED PARTY TRANSACTIONS
As
of
December 31, 2005, the Company had loans to two stockholders approximating
$506,000, including accrued interest. The loans accrue interest at 6% and are
due on demand. The Company has included the notes receivable from stockholders
in stockholders’ equity (deficit) as such amounts have not been repaid during
2005 or 2004. For each of the years ended December 31, 2005 and 2004, total
interest income from notes receivable from stockholders approximated
$20,000.
5.
NOTES
PAYABLE
During
the year ended December 31, 2001, the Company entered into an unsecured note
payable (“Note A”) with a third party for $250,000. Note A accrues interest at a
fixed rate of 18% per annum and matured in December 2003, as amended. Note
A is
personally guaranteed by a stockholder and was in default at December 31, 2004.
At December 31, 2004, the total outstanding principal balance on Note A was
$250,000. In December 2005, the Company entered into an agreement with the
note
holder to settle the entire principal balance of $250,000 plus accrued interest
of approximately $125,000 in exchange for 400,000 shares of restricted common
stock. As a result of this conversion and final settlement, the Company recorded
a gain on forgiveness of notes payable totaling approximately
$127,000.
During
the year ended December 31, 2001, the Company entered into a note payable (“Note
B”) with a third party for $215,000. Note B accrues interest at a fixed rate
of
15% per annum and matured in March 2002. Note B is secured by certain assets
of
the Company, as defined, and was in default at December 31, 2004. During 2005,
the Company and the note holder executed a mutual agreement to fully settle
the
debt whereby by the Company agreed to make fifteen monthly installments of
$12,000 (totaling $180,000) beginning January 2006 and to issue 100,000 shares
of restricted common stock valued at $62,000 (estimated based on the market
price of the stock on the date of the agreement) to the holder. Accrued interest
on the note totaled approximately $116,000 on the date of the transaction.
As a
result of the effective reduction in principal balance of $35,000, the
forgiveness of approximately $116,000 of accrued interest and the issuance
of
restricted common stock valued at $62,000, the Company recorded a gain on
forgiveness of notes payable totaling approximately $89,000 for the year ended
December 31, 2005.
In
January 2003, the Company entered into a note payable agreement (“Note C”) with
two individuals in the amount of $500,000 with an interest rate of 11% per
annum, which matured in April 2003. Note C is secured by certain assets of
the
Company. At December 31, 2005, the total outstanding principal balance on Note
C
was $500,000 and accrued interest totaled approximately $172,000.
In
December 2002, the Company entered into a note payable agreement (“Note D”) with
two individuals in the amount of $250,000 with an interest rate of 11% per
annum, which matured in February 2003. Note D is secured by certain assets
of
the Company. At December 31, 2005, the total outstanding principal balance
on
Note C was $250,000 and accrued interest totaled approximately
$104,000.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
5.
NOTES
PAYABLE (continued)
In
April,
2005, the Company and the note holders of Notes C and D (the “Noteholder”)
executed a mutual agreement (the “Extension Agreement”) whereby the Noteholder
agreed not to foreclose on the security interest of the two notes payable,
before the earlier of a funding or August 13, 2005. As consideration to
effectively extend the due date of the two notes until August 13, 2005, the
Company issued 250,000 shares of the Company’s restricted common stock to the
Noteholder. Additionally, the Extension Agreement required the Company to
register the shares by August 13, 2005, or it would need to pay penalties of
1,000 additional shares being issued for each day of delay up to thirty days
and
2,500 additional shares for each day thereafter. The estimated fair value of
the
250,000 shares (based on the trading price of the Company’s stock on the date of
issuance) totaling $47,500 was recorded on the date of issuance as a debt
discount against the face value of the notes and was amortized to interest
expense over the extension period in accordance with EITF 96-19, “Debtor’s
Accounting for a Modification or Exchange of Debt Instruments.” Subsequently,
the Noteholder waived its right to the penalty shares and has not attempted
to
foreclose on the notes. Such notes are in default at December 31,
2005.
During
November 2004, the Company borrowed $80,816 on two notes payable (“Note E”) to
one individual. Note E is unsecured, matured in January 2005, has an interest
rates of 6% and is currently in default. At December 31, 2005 the total
outstanding principal balance on Note E was approximately $81,000 and accrued
interest totaled approximately $6,000.
Principal
amounts due on the notes payable approximate the following for the years ending
December 31, 2006 and 2007:
2006
|
|
$
|
975,000
|
|
2007
|
|
|
36,000
|
|
|
|
|
|
|
|
|
$
|
1,011,000
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
6.
INCOME
TAXES
During
2005 and 2004, the provision for taxes differs from the amounts computed by
applying the U.S. Federal income tax rate of 34% to income before provision
for
taxes as a result of the following:
|
|
2005
|
|
2004
|
|
Computed
"expected" tax (benefit) expense
|
|
$
|
227,000
|
|
$
|
(484,000
|
)
|
|
|
|
|
|
|
|
|
Addition
to (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
State
income taxes, net of federal benefit
|
|
|
40,800
|
|
|
(57,000
|
)
|
Change
in deferred tax asset valuation allowance
|
|
|
(267,000
|
)
|
|
533,000
|
|
Non-deductible
expenses
|
|
|
—
|
|
|
8,800
|
|
|
|
|
|
|
|
|
|
|
|
$
|
800
|
|
$
|
800
|
|
The
effects of temporary differences that give rise to significant portions of
deferred
tax assets and liabilities at December 31, 2005 and 2004 are presented
below:
Deferred
tax assets:
|
|
|
|
|
|
Tax
net operating loss carryforwards
|
|
$
|
3,955,000
|
|
$
|
4,194,000
|
|
Accrued
inventory reserve
|
|
|
167,000
|
|
|
194,000
|
|
Accrued
expenses
|
|
|
18,000
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
Total
gross deferred tax asset
|
|
|
4,140,000
|
|
|
4,407,000
|
|
Less
valuation allowance
|
|
|
(4,140,000
|
)
|
|
(4,407,000
|
)
|
|
|
|
|
|
|
|
|
Total
net deferred tax asset
|
|
$
|
—
|
|
$
|
—
|
|
The
valuation allowance decreased by $267,000 and increased by $533,000 during
the
years ended December 31, 2005 and 2004, respectively. The current provision
for
income taxes for the years ended December 31, 2005 and 2004 is not significant
and due primarily to certain state taxes.
At
December 31, 2005, the Company had net tax operating loss carryforwards of
approximately $10.4 million and $7.2 million available to offset future taxable
federal and state income, respectively. If not utilized to offset future taxable
income, the federal and state carryforwards will expire in various years through
2025 and 2015, respectively. In the event the Company were to experience a
greater than 50% change in ownership as defined in Section 382 of the Internal
Revenue Code, the utilization of the Company’s tax net operating loss
carryforwards could be severely restricted.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
7.
EQUITY
TRANSACTIONS
PREFERRED
STOCK
The
Company has authorized 15,000,000 shares of cumulative, convertible Series
B
Preferred Stock (“Series B”) with a par value of $1 per share. The Series B has
a mandatory cumulative dividend of $1.25 per share, which is payable on a
semi-annual basis, and convertible into 1.67 shares of the Company’s common
stock, does not have any voting rights, and has liquidation preference equal
to
$25 per share before any payment or distribution shall be made on common stock.
As of December 31, 2001, in accordance with the conversion terms of the Series
B, 95,023 shares of the common stock remained un-issued and committed, which
the
Company has reclassified to common stock during the year ended December 31,
2002
because the stock had constructively been issued.
In
March
2002, the Board of Directors authorized 75,000 shares of 5% cumulative,
convertible Series C Preferred Stock (“Series C”) with a par value of $1 per
share. The Series C has a mandatory cumulative dividend of $1.25 per share,
which is payable on a semi-annual basis in June and December each year to
holders of record on November 30 and May 31, does not have any voting rights
and
has liquidation preferences, as defined. Each share of Series C is convertible
at the option of the holder into 16.667 shares of the Company’s common
stock.
During
the years ended December 31, 2005 and 2004, the Company issued 530,001 and
47,000 shares of restricted common stock, respectively, upon conversion of
31,800 and 2,820 shares of Series C, respectively, at a conversion rate of
16.667-to-1.
At
December 31, 2005, the Company had a total of 28,980 shares of Series C issued
and outstanding, with accumulated dividends totaling approximately $463,000,
which is included in dividends payable in the accompanying consolidated balance
sheet.
During
the year ended December 31, 2004, the Company issued a Private Placement
Memorandum (“PPM”) in which the Company offered to eligible investors, as
defined, a maximum of 30,000 shares of Series D Preferred Stock (“Series D”),
with a required minimum offering of 1,000 shares of Series D to be sold at
$25
per share. During the year ended December 31, 2004 and pursuant to the PPM,
the
Company issued 23,640 shares of Series D to eligible investors for proceeds
totaling $521,000, net of $30,000 paid to the broker/dealer and $40,000 of
accounts payable which were exchanged for shares. Such offering costs were
included as an offset to additional paid-in capital in the accompanying
consolidated financial statements. Since the related conversion rate is 50:1,
the effective conversion rate of $0.50 resulted in a deemed dividend of
$153,660, which was included in accumulated deficit. The deemed dividend is
also
reflected as an increase in the net loss attributable to common shareholders
for
2004 (see Note 8). Additionally, the broker/dealer was granted Three-Year
Placement Warrants, as defined in the PPM, with a cashless exercise feature
to
purchase 25,000 shares of the Company’s common stock at prices ranging from
$0.50 to $1.00. No expense was recorded related to the granting of such warrants
as they were considered an offering cost. The warrants vested immediately and
expire in February 2007.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
7.
EQUITY
TRANSACTIONS (continued)
PREFERRED
STOCK (CONTINUED)
In
July
2005, the Company issued 600,000 shares of restricted common stock upon
conversion of 12,000 shares of Series D at a conversion rate of
50-to-1.
At
December 31, 2005, the Company had a total of 11,640 shares of Series D issued
and outstanding, with accumulated dividends totaling approximately $103,000,
which is included in dividends payable in the accompanying consolidated balance
sheet.
COMMON
STOCK
During
the year ended December 31, 2001, the Company received a subscription receivable
of $87,500 from a member of the Board of Directors in exchange for shares of
the
Company’s restricted common stock. The subscription receivable bears interest at
an annual rate of 6%. Principal and any unpaid interest were due on October
6,
2001. As of December 31, 2005, the subscription receivable remains
unpaid.
During
the year ended December 31, 2002, the Company received two subscriptions
receivable totaling $375,000 in exchange for 250,000 restricted shares of common
stock. The receivables bear interest at an annual rate of 5%. Principal and
any
unpaid interest on both subscriptions receivable were due on August 22, 2003,
and are in default as of December 31, 2005. As of December 31, 2005, the
subscription receivable remains unpaid. The related accrued interest receivable
and interest income are insignificant to the consolidated financial
statements.
During
the year ended December 31, 2004, the Company issued 350,000 shares of
restricted common stock valued at $165,000 (estimated based on the market price
on the dates of grant) to three consultants for services rendered in relation
to
corporate finance, investor relations and management services that were
substantially completed during 2004. Approximately $157,000 was recorded as
consulting expense during the year ended December 31, 2004 and approximately
$8,000 remained unamortized as deferred consulting fees at December 31, 2004,
which was recorded as an offset to stockholders equity (deficit). Such
unamortized amount was entirely amortized to consulting expense during the
year
ended December 31, 2005.
In
April
2005, the Company issued 250,000 shares of restricted common stock, valued
at
$47,500 (estimated based on the market price on the dates of grant) to one
of
its creditors (see Note 5) as consideration to extend the maturity date of
certain notes payable.
On
April
25, 2005 the Company issued 300,000 shares of restricted common stock to a
holder of the Company’s Series D under a verbal agreement as the sole
consideration and remedy for failure to register the common shares underlying
the Series D. Accordingly, the Company expensed the fair value of the 300,000
common shares (based on the trading price of the Company’s stock on such date of
issuance) totaling $90,000. The extent of the registration rights of the Series
D was that the Company would use its best efforts to file a registration
statement underlying the conversion shares, however, the Company’s board of
directors decided to issue the penalty shares as a good faith measure to
maintain a good relationship with the investor.
In
April
2005, the Company issued 100,000 shares of restricted common stock to one of
its
former customers as an inducement and partial legal settlement for a pending
claim related to the sale of one its machines. The former customer then refused
to accept the shares and the Company then granted the shares to the attorney
which was representing the Company in the lawsuit. Accordingly, the Company
immediately expensed the fair value of such common stock totaling $20,000
(estimated based on the trading price of the Company’s stock on the date of
grant) and the attorney agreed to accept the shares as payment for outstanding
fees of such amount. At December 31, 2004, the Company had $206,000 accrued
as
an estimated legal settlement for this dispute. Such claim was settled in
December 2005. The settlement required the former customer to return the machine
to the Company and the Company to pay $275,000 to the former customer. The
Company decided to utilize the machine to manufacture materials used in its
production. As a result, the Company recorded the $275,000 cost of the machine
(which management believes equals the fair value) as machinery and equipment
and
recorded a corresponding credit (reduction) to selling, general and
administrative expenses in the accompanying consolidated statements of
operations for the year ended December 31, 2005.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
In
December 2005, the Company issued 400,000 and 100,000 shares of restricted
common stock to the holders of Notes A and B (see Note 5), respectively, to
settle the outstanding debt and recorded the stock at fair value (estimated
based on the trading price of the Company’s stock on the date of grant) totaling
$310,000.
In
December 2005, The Company issued 75,000 shares of restricted common stock
to
its securities counsel as payment for past due legal fees totaling $46,500,
which equaled the fair value of the stock on the date of settlement (estimated
based on the trading price of the Company’s stock on the date of
settlement).
During
2005, the Company issued 1,050,000 shares of restricted common stock under
several consulting contracts for management consulting and investor relations.
The contracts do not contain a “performance commitment” as defined in EITF 96-18
and, therefore, a measurement date does not exist until the services are
complete. As a result, the fair value of each stock issuance (estimated based
on
the trading price of the Company’s stock on the dates of the respective
agreements) was recorded as deferred consulting fees on the initial measurement
dates and subsequently adjusted (based on the then-current fair value at each
reporting date) through deferred consulting fees and is being amortized to
consulting expense over the periods of service until such time the respective
agreements are complete. The terms of the agreements range from three months
to
one year. Accordingly, the accompanying consolidated financial statements
include the marked-to-market fair value of the 1,050,000 shares of common stock
totaling $519,000 with amortization of the related deferred consulting fees
totaling approximately $265,000 for the year ended December 31, 2005. At
December 31, 2005, three of these contracts had not been completed and the
remaining deferred consulting fees approximated $255,000.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
7.
EQUITY
TRANSACTIONS (continued)
STOCK
OPTIONS AND WARRANTS
Under
the
terms of the Company’s Incentive Stock Option Plan (“ISOP”), options to purchase
an aggregate of 1,000,000 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. The options granted
generally vest evenly over a one-year period, beginning from the date of
grant.
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.
During
the years ended December 31, 2005 and 2004, the Company did not grant any stock
options or warrants and no stock options or warrants were
exercised.
The
following is a status of the stock options and warrants outstanding at December
31, 2005 and the changes during the two years then ended:
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
December
31, 2005
|
|
December
31, 2004
|
|
|
|
Options
and
|
|
Weighted
|
|
Options
and
|
|
Weighted
|
|
|
|
Warrants
|
|
Average
Price
|
|
Warrants
|
|
Average
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
|
|
1,711,583
|
|
$
|
1.75
|
|
|
1,821,583
|
|
$
|
2.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
25,000
|
|
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Terminated
|
|
|
(243,083
|
)
|
|
(9.88
|
)
|
|
(135,000
|
)
|
|
(9.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable, end of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
year
|
|
|
1,468,500
|
|
$
|
0.40
|
|
|
1,711,583
|
|
$
|
1.75
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
7.
EQUITY
TRANSACTIONS (continued)
STOCK
OPTIONS AND WARRANTS (CONTINUED)
The
following table summarizes information related to stock options outstanding
at
December 31, 2005:
|
|
Options
Outstanding
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
|
|
Contractual
|
|
Exercise
|
|
Exercise
Price
|
|
Number
|
|
Life
(Years)
|
|
Price
|
|
|
|
|
|
|
|
|
|
$0.25-
$0.75
|
|
|
1,320,000
|
|
|
2.7
|
|
$
|
0.25
|
|
$1.00-
$1.25
|
|
|
135,000
|
|
|
1.7
|
|
|
1.05
|
|
$5.00
|
|
|
5,000
|
|
|
2.0
|
|
|
5.00
|
|
$10.00
|
|
|
8,500
|
|
|
0.5
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,468,500
|
|
|
|
|
|
0.40
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
8.
LOSS
PER SHARE
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations for the years ended December 31,
2005 and 2004:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
668,359
|
|
$
|
(1,423,359
|
)
|
|
|
|
|
|
|
|
|
Cumulative
preferred dividends (See Note 7)
|
|
|
(156,300
|
)
|
|
(214,575
|
)
|
|
|
|
|
|
|
|
|
Deemed
dividends on preferred stock (See Note 7)
|
|
|
—
|
|
|
(153,660
|
)
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted earning (loss) per share:
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common stockholders
|
|
|
512,059
|
|
|
(1,791,594
|
)
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings (loss) per share:
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
9,186,987
|
|
|
7,038,209
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted earnings ( loss) per share:
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
9,836,987
|
|
|
7,038,209
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share
|
|
$
|
0.06
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share
|
|
$
|
0.05
|
|
$
|
(0.25
|
)
|
9.
COMMITMENTS AND CONTINGENCIES
SERVICE
AGREEMENTS
Periodically,
the Company enters into various agreements for services including, but not
limited to, public relations, financial consulting and manufacturing consulting.
Generally, the agreements are ongoing until such time they are terminated,
as
defined. Compensation for services is paid either at a fixed monthly rate or
based on a percentage, as specified, and may be payable in shares of the
Company’s common stock. The Company’s policy is that expenses related to these
types of agreements are valued at the fair market value of the services or
the
shares granted, whichever is more realistically determinable. Such expenses
are
amortized over the period of service.
LEASES
The
Company leases equipment under various operating agreements which require
monthly payments ranging from approximately $250 to $600, and mature through
July 2006.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
9.
COMMITMENTS AND CONTINGENCIES (continued)
LEASES
(CONTINUED)
The
Company leases its office and warehouse facility under a non-cancelable
operating lease agreement. The lease requires monthly lease payments of
approximately $33,000, with annual increases of 3% through December 2006. The
lease is personally guaranteed by one of the stockholders.
Future
minimum lease payments on the operating lease obligations approximate $400,000
for the year ended December 31, 2006. The Company currently has no future lease
commitments beyond such date.
Rental
expense for operating leases approximated $410,000 for each of the years ended
December 31, 2005 and 2004. Interest expense incurred pursuant to capital lease
obligations, which expired during 2005, approximated $13,000 and $18,000 for
the
years ended December 31, 2005 and 2004, respectively.
LEGAL
From
time
to time, the Company may be involved in various claims, lawsuits, and disputes
with third parties, actions involving allegations or discrimination or breach
of
contract actions incidental in the normal operations of the business. The
Company is currently not involved in any such litigation, which management
believes could have a material adverse effect on its financial position or
result of operations.
BACKLOG
(UNAUDITED)
The
following schedule approximates a reconciliation of backlog representing signed
contracts:
Balance,
January 1, 2005
|
|
$
|
3,471,000
|
|
New
contracts, January 1, 2005 through December
|
|
|
|
|
31,
2005
|
|
|
5,941,000
|
|
|
|
|
9,412,000
|
|
Less,
contract revenue earned - January 1, 2005
|
|
|
|
|
through
December 31, 2005
|
|
|
(6,038,000
|
)
|
|
|
|
|
|
Balance
December 31, 2005
|
|
$
|
3,374,000
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
10.
SUBSEQUENT EVENTS
On
February 15, 2006, the Company entered into a Series A Convertible Note with
a
third party (the “Holder”) for $300,000, which matures on the earlier of the
next debt or equity financing which the Company closes after the Issue Date
or
on May 16, 2006. The Note accrues interest at a fixed rate of 24% per annum
on
the unpaid principal balance from the Issue Date to the sixtieth day from the
Issue Date and bares interest at the rate 27% per annum after the sixtieth
day
from the Issue Date to the Maturity Date. Under the term of the Note, the
company issued 30,000 restricted shares of its common stock to the Holder;
454,545 Warrants to the Holder, and 45,454 Warrants to the placement agents
and
its designees. After the Company obtained the Financing described below, the
Company issued an additional 30,000 shares of common stock to the Holder, to
extend the Maturity Date of the Note to May 16, 2006. In conjunction with the
Note, the Company and the Holder entered into the following attendant
agreements, all dated February 15, 2006:
|
·
|
Registration
Rights Agreement whereby, all the securities issued in connection
with the
Note have five years right to Piggyback (to be included in the next
Registration Statement);
|
|
·
|
Common
Stock Purchase Warrant granting the Holder warrants to purchase 454,545
shares of common stock of the Company at an exercise price of $0.66
for a
term of five years (the “Warrants”);
|
|
·
|
Finder’s
Fee Agreement between the Company and a third
party.
|
On
February 28, 2006, the Company entered into a Securities Purchase Agreement
(the
“Agreement”) with CAMOFI Master LDC (the “Purchaser”) whereby the Company agreed
to sell, and the Purchaser agreed to purchase, up to $5,000,000 aggregate
principal amount of 12% Senior Secured Convertible Notes due February 28, 2009
(up to $3,500,000 to be purchased at the Closing and up to an additional
$1,500,000 to be purchased pursuant to an Additional Investment Right), secured
by a first priority lien on all assets of the Company and its current and future
subsidiaries (including a pledge of the shares of the Company’s current and
future Subsidiaries). In conjunction with the Agreement, the Company and the
Purchaser entered into the following attendant agreements, all dated February
28, 2006:
|
·
|
12%
Senior Secured Convertible Note for $3,500,000 due February 28, 2009
(the
“Notes”);
|
|
·
|
Security
Agreement between the Company and its current and future subsidiaries
on
the one hand and the Purchaser on the other
hand;
|
|
·
|
Common
Stock Purchase Warrant granting the Purchaser warrants to purchase
3,476,190 shares of common stock of the Company at an exercise price
of
$0.63 for a term of seven years (the
“Warrants”);
|
|
·
|
Twelve
month lock-agreements with certain Company shareholders;
|
|
·
|
Registration
Rights Agreement whereby, within 45 days, the Company shall prepare
and
file with the SEC a Registration Statement covering the resale of
125% of
the following securities (collectively, the “Registrable Securities”) of
the Purchaser for an offering to be made on a continuous basis pursuant
to
Rule 415: (i) all of the shares of common stock issuable upon conversion
of the Note or as interest on the Notes assuming all of the Notes
are
converted and all permissible interest payments are made in shares
of
common stock and the Notes are held until maturity, (ii) all shares
issuable as amortization payments on the Notes assuming all permissible
amortization payments are made in shares of common stock and the
Notes are
held until maturity, (iii) all shares of common stock underlying
the
Warrants, (iv) any securities issued or issuable upon any stock split,
dividend or other distribution recapitalization or similar event
with
respect to the foregoing; and (v) any additional shares issuable
in
connection with any anti-dilution provisions in the Notes or the
Warrants,
including a liquidated damages clause whereby if certain deadlines
for
filing, responding and effectiveness of the Registration Statement
(each,
an “Event Date”) are not met, the Company shall pay to the Purchaser an
amount in cash equal to 1.5% of the outstanding principal of the
Notes for
any Registrable Securities then held by the Purchaser for the first
30
days (or part thereof) after the Event Date and an additional 1.5%
for any
subsequent 30-day period (or part thereof), thereafter;
and
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005
|
·
|
Escrow
Agreement and side letter between the Purchaser and Katten Muchin
Rosenman
LLP (the “Escrow Agent”).
|
On
March
7, 2006, the Company issued 250,000 shares of restricted common stock to settle
accrued interest totaling $157,500 on two notes payable with principal balances
totaling $750,000.
On
March
9, 2006, the Company issued 150,000 warrants to purchase shares of common stock
with an exercise price of $0.63 to a consultant under an agreement to write
an
Executive Informational Overview.
On
March
17, 2006, the Company issued 200,000 shares of restricted common stock to a
consultant, under a 3 month consulting agreement, for investor relations
services.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEET
September
30, 2006
(Unaudited)
|
|
ASSETS
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
|
$
|
60,344
|
|
Restricted
cash
|
|
|
566,310
|
|
Contracts
receivable
|
|
|
740,464
|
|
Inventories,
net
|
|
|
1,585,704
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
531,535
|
|
Deferred
financing costs, net
|
|
|
335,067
|
|
Prepaid
expenses and other current assets
|
|
|
33,005
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,852,429
|
|
Property
and Equipment, net
|
|
|
319,914
|
|
Deferred
Financing Costs, net
|
|
|
474,678
|
|
|
|
|
|
|
|
|
$
|
4,647,021
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
1,706,804
|
|
Dividends
payable
|
|
|
320,400
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
246,763
|
|
Warrant
liability
|
|
|
1,320,953
|
|
Notes
payable
|
|
|
84,000
|
|
Convertible
notes payable, net of discounts
|
|
|
382,411
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
4,061,331
|
|
Convertible
Notes Payable, net of discounts
|
|
|
329,250
|
|
Commitments
and Contingencies
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
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, 27,780 shares issued and outstanding
|
|
|
|
|
(liquidation
preference of $903,000)
|
|
|
27,780
|
|
Cumulative,
convertible, Series D preferred stock, $25 par value,
|
|
|
|
|
75,000
shares authorized, 11,640 shares issued and outstanding
|
|
|
|
|
(liquidation
preference of $403,000)
|
|
|
291,000
|
|
Common
stock, $0.10 par value, 50,000,000 shares authorized;
|
|
|
|
|
11,459,654
shares issued and outstanding
|
|
|
1,145,966
|
|
Subscriptions
receivable
|
|
|
(462,500
|
)
|
Notes
receivable from stockholders
|
|
|
(505,639
|
)
|
Deferred
consulting fees
|
|
|
(35,808
|
)
|
Additional
paid-in capital
|
|
|
7,500,575
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(7,704,934
|
)
|
Total
stockholders' equity
|
|
|
256,440
|
|
|
|
|
|
|
|
|
$
|
4,647,021
|
|
See
accompanying notes to the condensed consolidated financial
statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS For the
Three
and
Nine Months Ended September 30, 2006 and 2005
(Unaudited)
|
|
For
the Three Months
|
|
For
the Nine Months
|
|
|
|
Ended
September 30,
|
|
Ended
September 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
CONTRACT
REVENUES
|
|
$
|
1,996,131
|
|
$
|
1,604,851
|
|
$
|
5,993,751
|
|
$
|
4,244,719
|
|
COST
OF SALES
|
|
|
1,627,231
|
|
|
1,008,635
|
|
|
4,414,891
|
|
|
2,890,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
368,900
|
|
|
596,216
|
|
|
1,578,860
|
|
|
1,354,403
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
and other compensation
|
|
|
104,464
|
|
|
153,418
|
|
|
432,422
|
|
|
351,797
|
|
Salaries
and related
|
|
|
86,826
|
|
|
27,701
|
|
|
212,948
|
|
|
125,253
|
|
Selling,
general and administrative
|
|
|
196,271
|
|
|
67,472
|
|
|
657,463
|
|
|
428,160
|
|
TOTAL
OPERATING EXPENSES
|
|
|
387,561
|
|
|
248,591
|
|
|
1,302,833
|
|
|
905,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
(18,661
|
)
|
|
347,625
|
|
|
276,027
|
|
|
449,193
|
|
OTHER
(INCOME) EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on forgiveness of debt
|
|
|
6,697
|
|
|
(50,760
|
)
|
|
(7,204
|
)
|
|
(50,760
|
)
|
Change
in fair value of derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liability
|
|
|
(834,285
|
)
|
|
—
|
|
|
(869,047
|
)
|
|
—
|
|
Liquidated
damages
|
|
|
420,000
|
|
|
—
|
|
|
582,500
|
|
|
—
|
|
Interest,
including debt discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
|
514,302
|
|
|
63,369
|
|
|
1,560,740
|
|
|
182,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER (INCOME) EXPENSES
|
|
|
106,714
|
|
|
12,609
|
|
|
1,266,989
|
|
|
131,894
|
|
INCOME
(LOSS) BEFORE PROVISION FOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
(125,375
|
)
|
|
335,016
|
|
|
(990,962
|
)
|
|
317,299
|
|
PROVISION
FOR INCOME TAXES
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
(125,375
|
)
|
$
|
335,016
|
|
$
|
(990,962
|
)
|
$
|
317,299
|
|
NET
INCOME (LOSS) APPLICABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TO
COMMON STOCKHOLDERS
|
|
$
|
(125,375
|
)
|
$
|
335,016
|
|
$
|
(745,487
|
)
|
$
|
211,774
|
|
Basic
net income (loss) applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
common share
|
|
$
|
(0.01
|
)
|
$
|
0.04
|
|
$
|
(0.07
|
)
|
$
|
0.03
|
|
Diluted
net income (loss) applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
common share
|
|
$
|
(0.01
|
)
|
$
|
0.04
|
|
$
|
(0.07
|
)
|
$
|
0.03
|
|
Basic
weighted average common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
11,435,487
|
|
|
8,741,821
|
|
|
11,176,819
|
|
|
7,912,876
|
|
Diluted
weighted average common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
11,435,487
|
|
|
9,268,011
|
|
|
11,176,819
|
|
|
8,439,066
|
|
See
accompanying notes to the condensed consolidated financial
statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the
Nine Month Ended June 30, 2006 and 2005
(Unaudited)
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(990,962
|
)
|
$
|
317,299
|
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
111,737
|
|
|
194,208
|
|
Net
gain on forgiveness of debt
|
|
|
(7,204
|
)
|
|
(50,760
|
)
|
Amortization
of deferred financing costs
|
|
|
254,545
|
|
|
—
|
|
Estimated
fair market value of common stock and warrants
|
|
|
|
|
|
|
|
issued
for consulting services
|
|
|
244,909
|
|
|
122,833
|
|
Amortization
of debt discounts
|
|
|
1,020,628
|
|
|
47,500
|
|
Estimated
fair market value of common stock
|
|
|
|
|
|
|
|
issued
for penalties and settlement
|
|
|
—
|
|
|
110,000
|
|
Change
in fair value of derivative liability
|
|
|
(869,047
|
)
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Contracts
receivable
|
|
|
(452,895
|
)
|
|
(47,920
|
)
|
Inventories
|
|
|
(656,757
|
)
|
|
14,824
|
|
Costs
and estimated earnings in excess of billings
|
|
|
|
|
|
|
|
on
uncompleted contracts
|
|
|
(113,780
|
)
|
|
(363,863
|
)
|
Prepaid
expenses and other current assets
|
|
|
(31,445
|
)
|
|
(8,041
|
)
|
Accounts
payable and accrued expenses
|
|
|
154,362
|
|
|
236,445
|
|
Billings
in excess of costs and estimated earnings
|
|
|
|
|
|
|
|
on
uncompleted contracts
|
|
|
(254,621
|
)
|
|
(355,196
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(1,590,530
|
)
|
|
217,329
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(20,000
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(20,000
|
)
|
|
—
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(566,310
|
)
|
|
—
|
|
Bank
overdraft
|
|
|
(27,649
|
)
|
|
—
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
3,800,000
|
|
|
—
|
|
Principal
payments on notes payable
|
|
|
(846,000
|
)
|
|
—
|
|
Principal
payments on convertible notes payable
|
|
|
(266,667
|
)
|
|
—
|
|
Deferred
financing costs
|
|
|
(422,500
|
)
|
|
—
|
|
Principal
repayments on obligations under capital lease
|
|
|
—
|
|
|
(63,406
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
1,670,874
|
|
|
(63,406
|
)
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
60,344
|
|
|
153,923
|
|
Cash
at beginning of period
|
|
|
—
|
|
|
129,087
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
60,344
|
|
$
|
283,010
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
Common
stock and warrants issued for deferred financing costs
|
|
$
|
641,790
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Conversion
of note payable interest to common stock
|
|
$
|
170,250
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Debt
discounts on convertible notes payable
|
|
$
|
3,823,400
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Debt
discount on notes payable for note extension
|
|
$
|
18,900 |
|
$
|
47,500 |
|
|
|
|
|
|
|
|
|
Accrued
cumulated
dividends on preferred stock
|
|
$
|
42,000 |
|
$
|
105,525 |
|
|
|
|
|
|
|
|
|
Cummulative
preferred dividends waived
|
|
$
|
287,875 |
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
$
|
2,000 |
|
$
|
331,800 |
|
See
accompanying notes to the condensed consolidated financial
statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
1.
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AND NATURE OF OPERATIONS
New
Century Companies, Inc. and Subsidiary (collectively, the "Company"), a
California corporation, was incorporated March 1996 and is located in Southern
California. The Company provides after-market services, including
rebuilding,retrofitting and remanufacturing of metal cutting machinery. Once
completed, a remanufactured machine is "like new" with state-of-the-art
computers, and the cost to the Company's customers is substantially less
than
the price of a new machine.
The
Company currently sells its services by direct sales and through a network
of
machinery dealers across the United States. Its customers are generally medium
to large sized manufacturing companies in various industries where metal
cutting
is an integral part of their businesses. The Company grants credit to its
customers who are predominately located in the western United
States.
The
Company trades on the OTC Bulletin Board under the symbol
"NCNC.OB".
PRINCIPLES
OF CONSOLIDATION
The
condensed consolidated financial statements include the accounts of New Century
Companies, Inc. and its wholly owned subsidiary, New Century Remanufacturing
(collectively, the Company". All significant intercompany accounts and
transactions have been eliminated in consolidation.
BASIS
OF
PRESENTATION
The
accompanying unaudited interim condensed consolidated financial statements
have
been prepared by the Company, pursuant to the rules and regulations of the
United States Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") have been omitted pursuant to such SEC
rules
and
regulations; nevertheless, the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and the notes hereto should be read in conjunction with the financial
statements, accounting policies and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2005, filed
with
the SEC. In the opinion of management, all adjustments necessary to present
fairly,
in accordance with GAAP, the Company's financial position as of September
30,
2006, and the results of operations and cash flows for the interim periods
presented, have been made. Such adjustments consist only of normal recurring
adjustments. The results of operations for the nine moths ended September
30,
2006 are not necessarily indicative of the results for the full
year.
GOING
CONCERN
The
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates,
among
other things, the realization of assets and satisfaction of liabilities in
the
normal course of business. The Company has negative working capital of $208,902
and an accumulated deficit of $7,704,934 at September 30, 2006, and had net
cash
used in operating activities of $1,590,530 for the nine months ended September
30, 2006. These factors, among others, raise substantial doubt about
the
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
Company's
ability to continue as a going concern. The Company funds operations through
increased sales and debt and equity financing arrangements which management
believes may be insufficient to fund its capital expenditures, working capital
and other cash requirements for the fiscal year ending December 31, 2006.
Therefore, the Company will be required to seek additional funds to finance
its
long-term operations. The successful outcome of future activities cannot
be
determined at this time and there is no assurance that if achieved, the Company
will have sufficient funds to execute its intended business plan or generate
positive operating results.
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
markets.
|
The
condensed consolidated financial statements do not include any adjustments
related to recoverability and classification of asset carrying amounts or
the
amount and classification of liabilities that might result should the Company
be
unable to continue as a going concern.
INVENTORY
Inventories
are stated at the lower of cost or net realizable value. Cost is determined
under the first-in, first-out method. Inventories represent cost of work
in
process on units not yet under contract. Cost includes all direct material
and
labor, machinery, subcontractors and allocations of indirect
overhead.
REVENUE
RECOGNITION
The
Company's revenues consist of contracts with vendors. 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.
Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition" 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 SEC. Management believes
that
the Company's revenue recognition policy conforms to SAB No. 104. The Company
recognizes revenue on contracts pursuant to SOP 81-1.
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
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. Costs incurred and revenue earned on contracts in progress
in excess of billings (under billings) are classified as a current asset.
Amounts billed in excess of costs and revenue earned (over billings) are
classified as a current liability.
The
Company accounts for shipping and handling fees and costs in accordance with
Emerging Issues Task Force ("EITF") Issue No. 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 Statements of Financial Accounting Standards ("SFAS") No.
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.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
BASIC
AND
DILUTED LOSS PER COMMON SHARE
Under
SFAS No. 128, "Earnings Per Share," basic earnings per common share is computed
by dividing income available to common stockholders by the weighted-average
number of common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic earnings
per share except that the denominator is increased to include the number
of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There were 877,922 potentially dilutive and 13,372,330 potential common shares
at September 30, 2006, which include common stock purchase warrants and shares
underlying convertible preferred stock and convertible notes
payable.
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations for the three and nine month
periods
ended September 30, 2006 and 2005:
For
the Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Net
income (loss)
|
|
$
|
(125,375
|
)
|
$
|
335,016
|
|
Cumulative
preferred dividends accrued
|
|
|
|
|
|
|
|
Numerator
for basic and diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common stockholders
|
|
|
(125,375
|
)
|
|
335,016
|
|
Denominator
for basic net income (loss) per common share:
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
11,435,487
|
|
|
8,741,821
|
|
Denominator
for diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
11,435,487
|
|
|
9,268,011
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per common share
|
|
$
|
(0.01
|
)
|
$
|
0.04
|
|
Diluted
net income (loss) per common share
|
|
$
|
(0.01
|
)
|
$
|
0.04
|
|
For
the Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Net
income (loss)
|
|
$
|
(990,962
|
)
|
$
|
317,299
|
|
Cumulative
preferred dividends accrued
|
|
|
(42,400
|
)
|
|
(105,525
|
)
|
Waiver
of accrued cumulative preferred
|
|
|
|
|
|
|
|
dividends
|
|
|
287,875
|
|
|
—
|
|
Numerator
for basic and diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
Net
income (loss) available to common stockholders
|
|
|
(745,487
|
)
|
|
211,774
|
|
Denominator
for basic net income (loss) per common share:
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
11,176,819
|
|
|
7,912,876
|
|
Denominator
for diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
11,176,819
|
|
|
8,439,066
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per common share
|
|
$
|
(0.07
|
)
|
$
|
0.03
|
|
Diluted
net income (loss) per common share
|
|
$
|
(0.07
|
)
|
$
|
0.03
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
STOCK
BASED COMPENSATION
Effective
January 1, 2006, the Company adopted the provisions of SFAS No.
123-R,"Share-Based Payment," ("SFAS No. 123-R"). 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 Company previously accounted for awards granted under its equity
incentive plan under the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and
related interpretations, and provided the required pro forma disclosures
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," as
amended. 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, no share-based compensation
was
recognized in the financial statements prior to January 1, 2006.
Under
the
modified prospective method of adoption for SFAS No. 123-R, the compensation
cost recognized by the Company beginning January 1, 2006 includes (a)
compensation cost for all equity incentive awards granted prior to, but not
yet
vested as of April 1, 2006, based on the grant-date fair value estimated
in
accordance with the original provisions of SFAS No. 123, and (b) compensation
cost for all equity incentive awards granted subsequent to January 1, 2006,
based
on
the grant-date fair value estimated in accordance with the provisions of
SFAS
No. 123-R.
From
time
to time, the Company's Board of Directors grants common share purchase options
or warrants to selected directors, officers, employees, consultants and advisors
in payment of goods or services provided by such persons on a stand-alone
basis
outside of any of the Company's formal stock plans. The terms of these grants
are individually negotiated and generally expire within five years from the
grant date.
Under
the
terms of the Company's 2000 Stock Option Plan, options to purchase an aggregate
of 5,000,000 shares of common stock may be issued to officers, key employees
and
consultants of the Company. The exercise price of any option generally may
not
be less than the fair market value of the shares on the date of grant. The
term
of each option generally may not be more than five years.
At
September 30, 2006, the Company had 3,750,000 options available for future
issuance under their equity compensation plans.
The
effects of share-based compensation resulting from the application of SFAS
No.
123-R to options granted outside of the Company's Stock Option Plan resulted
in
zero expense for the three and nine month periods ended September 30, 2006.
Share-based compensation recognized as a result of the adoption of SFAS No.
123-R as well as pro forma disclosures according to the original provisions
of
SFAS No. 123 for periods prior to the adoption of SFAS No. 123-R use the
Black
Scholes option pricing model for estimating fair value of options
granted.
In
accordance with SFAS No. 123-R, the Company's policy is to adjust share-based
compensation on a quarterly basis for changes to the estimate of expected
award
forfeitures based on actual forfeiture experience. The effect of adjusting
the
forfeiture rate for all expense amortization after December 31, 2006 is
recognized in the period the forfeiture estimate is changed. Since the Company
had no unvested options during the nine month period ended September 30,
2006,
the
effect of forfeiture adjustments in the three and nine month periods was
not
applicable.
Pro
forma
information required under SFAS No. 123 for periods prior to 2006 as if the
Company had applied the fair value recognition provisions of SFAS No. 123
to
options granted under and outside of the Company's equity incentive plans
was as
follows:
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
|
|
|
Three
Months
Ended
September
30,
|
|
|
Nine
Months
Ended
September
30,
|
|
|
|
|
2006
|
|
|
2006
|
|
Net
income (loss) available as reported
|
|
|
(125,375
|
)
|
|
(745,487
|
)
|
Less:
Total stock-based employee compensation
|
|
|
|
|
|
|
|
expense
determined under the Black Scholes
|
|
|
|
|
|
|
|
option
pricing model, net of tax
|
|
|
—
|
|
|
—
|
|
Pro
forma net loss
|
|
$
|
(125,375
|
)
|
$
|
(745,487
|
)
|
Basic
net income (loss) per common share :
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.01
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Pro
forma
|
|
$
|
(0.01
|
)
|
$
|
(0.07
|
)
|
Diluted
net income (loss) per common share
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.01
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Pro
forma
|
|
$
|
(0.01
|
)
|
$
|
(0.07
|
)
|
Pro
forma
compensation expense reported in the above table is generally based on the
vesting provisions in the related stock option grants. Since all options
granted
prior to January 1, 2005 had been completely vested prior to such date, there
is
no pro forma compensation expense to disclose for the three and nine months
ended September 30, 2005, as reflected in the above table, nor any weighted
average assumptions to disclose.
The
expected volatility is based on the historical volatility. The expected life
of
options granted is based on the "simplified method" described in the SEC's
Staff
Accounting Bulletin No. 107 due to changes in the vesting terms and contractual
life of current option grants compared to the Company's historical
grants.
Options
outstanding that have vested and are expected to vest as of September 30,
2006
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Number
of
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Term
in Years
|
|
Value
(1)
|
|
Vested
|
|
|
1,255,000
|
|
$
|
0.34
|
|
|
1.87
|
|
$
|
149,500
|
|
Expected
to vest
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
—
|
|
Total
|
|
|
1,255,000
|
|
|
—
|
|
|
—
|
|
$
|
149,500
|
|
(1) |
These
amounts represent the difference between the exercise price and
$0.38,
the closing market price of the Company's common stock on September
30,
2006 as quoted on the Over-the-Counter Bulletin Board under the
symbol
"NCNC.OB"
for all in-the-money options outstanding.
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
The
Company's policy for options outstanding that are expected to vest are net
of
estimated future forfeitures in accordance with the provisions of SFAS No.
123-R,
which are estimated when compensation costs are recognized. Additional
information
with respect to stock option activity is as follows:
|
|
|
|
Outstanding
Options
|
|
|
|
Shares
Available
for Grant
|
|
|
|
Weighted
Average Exercise Price
|
|
Aggregate
Intrinsic
Value
(1)
|
|
December
31, 2005
|
|
|
3,600,000
|
|
|
1,413,500
|
|
$
|
0.40
|
|
$
|
481,000
|
|
Grants
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Exercises
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Cancellations
|
|
|
150,000
|
|
|
158,500
|
|
$
|
0.34
|
|
|
|
|
September
30,
2006
|
|
|
3,750,000
|
|
|
1,255,000
|
|
$
|
0.34
|
|
$
|
149,500
|
|
Options
exerciseable at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2005
|
|
|
|
|
|
1,413,500
|
|
$
|
0.40
|
|
|
|
|
September
30,
2006
|
|
|
|
|
|
1,255,000
|
|
$
|
0.34
|
|
|
|
|
(1)
Represents the difference between the exercise price and the December 31,
2005
or September 30, 2006 market price of the Company's common stock, which was
$0.62 and $0.38 respectively.
The
Company follows SFAS No. 123 (R) (as interpreted by 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") to account
for
transactions involving services provided by third parties where the Company
issues equity instruments as part of the total consideration. Pursuant to
paragraph 7 of SFAS No. 123 (R), the Company accounts for such transactions
using
the
fair value of the consideration received (i.e. the value of the goods or
services) or the fair value of the equity instruments issued, whichever is
more
reliably measurable. The Company applies EITF Issue No. 96-18, in transactions,
when the value of the goods and/or services are not readily determinable
and (1)
the fair value of the equity instruments is more reliably measurable and
(2) the
counterparty receives equity instruments in full or partial settlement of
the
transactions, using the following methodology:
a)
For
transactions where goods have already been delivered or services rendered,
the
equity instruments are issued on or about the date the performance is complete
(and valued on the date of issuance).
b)
For
transactions where the instruments are issued on a fully vested, non-forfeitable
basis, the equity instruments are valued on or about the date of the
contract.
c)
For
any transactions not meeting the criteria in (a) or (b) above, the Company
re-measures the consideration at each reporting date based on its then current
stock value.
DEFERRED
FINANCING COSTS
Direct
costs of securing debt financing are capitalized and amortized over the term
of
the related debt using the straight-line method. When a loan is paid in full,
any unamortized financing costs are removed from the related accounts and
charged to operations. During the three months ended September 30, 2006,
the
Company amortized approximately $84,000.
STOCK
PURCHASE WARRANTS ISSUED WITH NOTES PAYABLE
The
Company granted warrants in connection with the issuance of certain notes
payable. Under Accounting Principles Board Opinion No. 14, "Accounting for
Convertible Debt and Debt Issued With Stock Purchase Warrants," the relative
estimated fair value of such warrants represents a discount from the face
amount
of the notes payable. Such discounts are amortized to interest expense over
the
term of the notes.
BENEFICAL
CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE
The
convertible feature of certain notes payable provides for a rate of conversion
that is below market value. Such feature is normally characterized as a
"Beneficial Conversion Feature" ("BCF").
Pursuant to EITF Issue No. 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratio"
and
EITF No. 00-27, "Application of EITF Issue No. 98-5 To Certain Convertible
Instruments," the estimated fair value
of
the BCF is recorded in the consolidated financial statements as a discount
from
the face amount of the notes. Such discounts are amortized to interest expense
over the term of the notes.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
CLASSIFICATION
OF WARRANT OBLIGATION
In
connection with the issuance of the 12% Senior Secured Convertible Notes
(See
Note 3), the Company has an obligation to file a registration statement covering
the resale of 125% of the Registrable Securities, as defined in the Registration
Rights Agreement. The obligation to file the registration statement meets
the
criteria of an embedded derivative to be bifurcated pursuant to SFAS No.
133,
"Accounting for Derivative Instruments and Hedging Activities", as amended.
Under
this transaction, the Company is obligated to register for resale the common
shares underlying the warrants, and as a result, the embedded derivative
associated with this warrant obligation does not meet the scope exception
of
paragraph 11(a) of SFAS No. 133. Specifically, at the commitment date, the
Company did not have any uncommitted registered shares to settle the warrant
obligation and accordingly, such obligation has been classified as a liability
(outside
of stockholders' equity) in accordance with EITF Issue No. 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a
Company's Own Stock." The classification of the warrant obligation will be
evaluated at each reporting date and as such, it will continue to be reported
as
a liability until such time all of the criteria necessary for equity
classification have been met.
NEW
ACCOUNTING PRONOUNCEMENTS
Recent
accounting pronouncements discussed in the notes to the December 31, 2005
financial statements filed previously with the Securities and Exchange
Commission in Form 10-KSB that are required to be adopted during the year
ending
December 31, 2006 did not or will not have a significant impact on the Company's
financial statements.
2.
CONTRACTS IN PROGRESS
Contracts
in progress as of September 30, 2006 which include completed contracts not
completely billed, approximate:
Cumulative
costs to date
|
|
$
|
5,081,000
|
|
Cumulative
gross profit to date
|
|
|
4,700,000
|
|
Cumulative
revenue earned
|
|
|
9,781,000
|
|
|
|
|
|
|
Less
progress billings to date
|
|
|
(9,496,000
|
)
|
|
|
|
|
|
Net
under billings
|
|
$
|
285,000
|
|
The
following is included in the accompanying condensed consolidated balance
sheet
under these captions as of September 30, 2006:
Costs
and estimated earnings in excess of billings
|
|
|
|
|
on
uncompleted contracts
|
|
$
|
532,000
|
|
Billings
in excess of costs and estimated earnings
|
|
|
|
|
on
uncompleted contracts
|
|
|
(247,000
|
)
|
Net
under billings
|
|
$
|
285,000
|
|
3.
DEBT
TRANSACTIONS
During
the three months ended September 30, 2006, the Company amortized approximately
$313,000 of debt discounts, including beneficial conversion features, to
interest expense.
During
the three months ended September 30, 2006, the Company made cash payments
of
$36,000 to reduce the principal balance on one of its outstanding secured
notes
payable. As of September 2006, the balance of the note is $84,000.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
During
the quarter ended September 30, 2006, the Company settled two notes payable
with
a note holder with principal balances totaling approximately $80,000 and
recognized $40,000 in forgiveness of debt.
During
the three months ended September 30, 2006, the Company made cash payments
of
$116,667 to reduce the principal balance on one of its outstanding secured
convertible notes payable. As of September 2006, the principal balance is
approximately $3,383,000 which is presented net of debt discounts totaling
approximately $564,000.
Also,
during the three months ended September 30, 2006, the Company made cash payments
of $150,000 to reduce the principal balance on one of its outstanding
convertible notes payable. As of September 2006, the balance on such note
is
$150,000. The balance is due on October 16, 2006, and is currently in
default.
4.
EQUITY
TRANSACTIONS
On
July
25, 2006, in connection with the Motivated Minds convertible note dated February
15, 2006, the Company issued 45,000 restricted shares of common stock to
Motivated Minds for extension of the maturity date of $150,000 of principal
balance of the note until August 16, 2006, and the remaining principal balance
of $150,000 of the note until October 16, 2006. The common stock was recorded
at
the estimated fair value of the common stock on the date of the transaction
totaling approximately $23,000, which was recorded as interest expense for
the
quarter
ended September 30, 2006.
In
July
2006, the Company issued 100,000 shares of common stock valued at $41,000
(based
on the market price of the shares) to a third party for consulting services
under one month contract.
5.
CONTINGENCIES
On
February 28, 2006, the Company entered into a Securities Purchase Agreement
("the Note") with CAMOFI whereby CAMOFI agreed to purchase, up to $5,000,000
aggregate principal amount of 12% Senior Secured Convertible Notes, due February
28, 2009 (up to $3,500,000 to be purchased at the closing and up to an
additional $1,500,000 to be purchased pursuant to an Additional Investment
Right), secured by a first priority lien on all assets of the Company and
its
current
and future subsidiaries (including a pledge of the shares of the Company's
current and future Subsidiaries). The Note is convertible into shares of
the
Company's common stock at a fixed price of $0.63 at any time at CAMOFI's
option.
Additionally, $1,500,000 of the $3,500,000 proceeds from the closing were
placed
into an escrow account, which was originally intended to be used for a potential
private company business acquisition. Accordingly, such amount has been
recorded as restricted cash in the accompanying condensed consolidated balance
sheet at September 30, 2006. In connection with the Note, the Company issued
3,476,190 warrants at an exercise price of $0.63 to CAMOFI. The warrants
vested
and became fully exercisable on their issuance date. Based upon changed
circumstances and the immediate need of the Company for the funds for general
working capital purposes, the parties decided to release the funds held in
escrow
to
the Company as follows: (a) $750,000 on July 10, 2006 and (b) $750,000 on
August
4, 2006. The Company utilized the first $750,000 funds for general working
capital purposes. The balance of $750,000 is restricted solely for payment
of
the principal balance of the Note.
CAMOFI
has not exercised its $1,500,000 Additional Investment Right. Additionally,
CAMOFI has certain registration rights for the common stock underlying both
the
warrants and the convertible debt. The related registration rights agreement
includes financial penalties because the Company failed to meet the registration
statement effectiveness deadline, which was June 28, 2006. Such penalties,
which
are 1.5% of the outstanding principal balance of the Note for the first 30
days
and an additional 1.5% for each 30 day period thereafter, can be paid in
common
stock at the option of the Company.
As
of
September 30, 2006, the Company has accrued $582,500 for such estimated
liquidated damages, which are included in accounts payable and accrued expenses
in the accompanying condensed consolidated balance sheet. Of such amount,
$43,500 was accrued during the three months ended March 31, 2006, $119,000
was
accrued during the three months ended June 30, 2006, and $420,000 was accrued
during the three month ended September 30, 2006, based on the estimate that
the
registration statement will become effective at the current year end. As
a
result of not meeting these deadlines, this condition may be deemed an "Event
of
Default" if not cured to the satisfaction of CAMOFI prior to the expiration
of
thirty days from the Event Date, as defined in the registration rights
agreement, and could possibly allow CAMOFI to call the debt or seek other
remedy
at such time.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
The
Nine Months Ended September 30, 2006 And 2005
(Unaudited)
6.
SUBSEQUENT EVENTS
On
October 23, 2006, the Company announced that its proposed acquisition of
Quilite
International will be delayed for an indefinite period of time. The Company
stated that negotiations for the acquisition have not moved forward as a
result
of the illness of Quilite's CEO. Assembly of Quilite products has also been
suspended due to the illness.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our
Articles of Incorporation, as amended and restated, provide to the fullest
extent permitted by the corporate law of the State of Nevada, that our directors
or officers shall not be personally liable to us or our shareholders for damages
for breach of such director's or officer's fiduciary duty. The effect of this
provision on our Articles of Incorporation, as amended and restated, is to
eliminate our rights and our shareholders (through shareholders' derivative
suits on behalf of our company) to recover damages against a director or officer
for breach of the fiduciary duty of care as a director or officer (including
breaches resulting from negligent or grossly negligent behavior), except under
certain situations defined by statute. We believe that the indemnification
provisions in our Articles of Incorporation, as amended, are necessary to
attract and retain qualified persons as directors and officers.
Our
By
Laws also provide that the Board of Directors may also authorize the Company
to
indemnify our employees or agents, and to advance the reasonable expenses of
such persons, to the same extent, following the same determinations and upon
the
same conditions as are required for the indemnification of and advancement
of
expenses to our directors and officers. As of the date of this Registration
Statement, the Board of Directors has not extended indemnification rights to
persons other than directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
ITEM
25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth an itemization of all estimated expenses, all of
which we will pay, in connection with the issuance and distribution of the
securities being registered:
NATURE
OF EXPENSE AMOUNT
SEC
REGISTRATION FEE
|
|
$
|
117.82
|
|
ACCOUNTING
FEES AND EXPENSES
|
|
$
|
5,000
|
* |
LEGAL
FEES AND EXPENSES
|
|
$
|
40,000
|
* |
MISCELLANEOUS
|
|
$
|
4,882.18
|
* |
|
|
$
|
50,000
|
|
*
Estimated.
PREFERRED
STOCK
In
September 2005, holders of the Company's Preferred C converted 31,800 shares
into 530,001 shares of common stock.
In
August
2005, holders of the Company's Preferred D converted 12,000 shares into 600,000
shares of common stock.
COMMON
STOCK
On
October 27, 2005, the Company issued 300,000 shares of restricted common stock
to a consultant for corporate finance and investor relations services under
a
one year consulting agreement. The fair value of the common stock (based on
the
trading price of the Company's stock on the date of issuance) was
$132,000.
On
October 26, 2005, the Company issued 100,000 shares of restricted common stock
to a consultant for corporate finance and investor relations services under
a
one year consulting agreement. The fair value of the common stock (based on
the
trading price of the Company's stock on the date of issuance) was
$42,000.
On
October 11, 2005, the Company issued 100,000 shares of restricted common stock
to a consultant for corporate finance and investor relations services under
a
one year consulting agreement. The fair value of the common stock (based on
the
trading price of the Company's stock on the date of issuance) was
$41,000.
On
July
14, 2005, the Company issued 300,000 shares of restricted common stock to a
consultant for corporate finance and investor relations services under a one
year consulting agreement. The fair value of the common stock (based on the
trading price of the Company's stock on the date of issuance) was
$75,000.
On
April
25, 2005 the Company issued 300,000 shares of restricted common stock to a
holder of the Company's Cumulative, Convertible, Series D preferred stock
("Series D") under a verbal agreement as the sole consideration and remedy
for
failure to register the common shares underlying the Series D. The fair value
of
the 300,000 common shares (based on the trading price of the Company's stock
on
such date of issuance) was $90,000.
On
April
25, 2005, the Company issued 150,000 shares of restricted common stock to a
consultant for corporate finance and investor relations services under a six
month verbal agreement. The fair value of the common stock (based on the trading
price of the Company's stock on the date of issuance) was $45,000.
On
April
21, 2005, the Company entered into a six month corporate finance and investor
relations consulting agreement. As a commencement bonus for the services to
be
provided by the consultant, the Company issued 100,000 shares of restricted
common stock in accordance with the contract. The fair value of the 100,000
share commencement bonus (based on the trading price of the Company's stock
on
the date of issuance) was $20,000.
On
April
21, 2005, the Company issued 100,000 shares of restricted common stock to one
of
its former customers as a partial legal settlement for a pending claim related
to the sale of one its machines. The fair value of such common stock was $20,000
(based on the trading price of the Company's stock on the date of issuance).
On
October 31, 2005 the dispute was fully settled. As part of this settlement,
it
was stipulated that the customer shall not exercise the option to receive the
Company's shares of stock, and agreed to assign the shares to our legal
counselor, without representation or warranty.
On
April
12, 2005, the Company and one if its noteholders (the "Noteholder") executed
a
mutual agreement (the "Extension Agreement") whereby the Noteholder agreed
not
to foreclose on the security interest of two notes payable, which were in
default, before the earlier of a funding (which has not occurred as of the
filing of this Form 10-QSB) or August 13, 2005. As consideration to effectively
extend the due date of the two notes until August 13, 2005, the Company issued
the Noteholder 250,000 shares of the Company's restricted common stock. The
estimated fair value of the 250,000 shares (based on the trading price of the
Company's stock on the date of issuance) was $47,500.
On
February 16, 2006, we issued a convertible note to Motivated Minds, LLC in
the
principal amount of $300,000. In connection with the Note we issued a warrant
to
Motivated Minds to purchase up to 454,545 shares of Common Stock at a price
of
$0.66 per share. Such Warrant will be exercisable immediately upon issuance
and
will expire on the fifth anniversary of the date of issuance. In addition,
in
connection with the Note, we issued 30,000 restricted shares of our common
stock
to Motivated Minds and an aggregate of 45,454 warrants to the Placement Agents,
Source Capital Group, Inc. and Ascendiant Securities, LLC which warrants are
exercisable at a price of $.66 per share and which expire on February 14,
2011.
On
February 28, 2006, to obtain funding for our operations, we entered into a
Securities Purchase Agreement with CAMOFI Master LDC ("CAMOFI") for the sale
of
(i) $3,500,000 in 12% Senior Secured Convertible Notes; and (ii) stock purchase
warrants to purchase 3,476,190 shares of our common stock. In connection with
the CAMOFI Note, we have issued 250,000 restricted shares of our common Stock
and 722,539 warrants to the Placement Agent, Ascendiant Securities, LLC, of
which 90,317 warrants were assigned to Michael S. Cole. The Warrants are
exercisable at a price of $.63 and expire on February 28, 2013.
*
Unless
indicated otherwise, all of the above offerings and sales were deemed to be
exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act
of
1933, as amended. No advertising or general solicitation was employed in
offering the securities. The offerings and sales were made to a limited number
of persons, all of whom were accredited investors, business associates of New
Century or executive officers of New Century, and transfer was restricted by
New
Century in accordance with the requirements of the Securities Act of 1933.
In
addition to representations by the above-referenced persons, we have made
independent determinations that all of the above-referenced persons were
accredited or sophisticated investors, and that they were capable of analyzing
the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
The
following exhibits are included as part of this Form SB-2. References to "the
Company" in this Exhibit List mean New Century Companies, Inc.
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)
|
|
|
|
5.1
|
|
Sichenzia
Ross Friedman Ference LLP Opinion and Consent (filed
herewith)
|
|
|
|
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 (filed
herewith)
|
|
|
|
10.14
|
|
Amendment
to Registration Rights Agreement dated August 8, 2006 (filed
herewith)
|
|
|
|
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)
|
|
|
|
21.1
|
|
Subsidiaries
of the Company (6).
|
|
|
|
23.1
|
|
Consent
of Squar, Milner, Peterson, Miranda, & Williamson, LLP (filed
herewith)
|
|
|
|
23.2
|
|
Consent
of Sichenzia Ross Friedman Ference LLP (See Exhibit
5.1)
|
|
|
|
(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
|
ITEM
28. UNDERTAKINGS.
The
undersigned registrant hereby undertakes to:
(1)
File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the securities offered would not exceed
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities Act
if,
in the aggregate, the changes in volume and price represent no more than a
20%
change in the maximum aggregate offering price set forth in the "Calculation
of
Registration Fee" table in the effective registration statement,
and
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4)
For
purposes of determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5)
For
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement
for
the securities offered in the registration statement, and that offering of
the
securities at that time as the initial bona fide offering of those
securities.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the registrant of expenses incurred or paid by a director, officer
or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorizes this amendment no. 1 to
the
registration statement to be signed on its behalf by the undersigned, in the
City of Santa Fe Springs, State of California, on January 23, 2007.
|
|
|
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New
Century Companies, Inc.
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By: |
/s/ David
Duquette
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David
Duquette
Chief
Executive Officer and Chief Financial
Officer
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KNOW
ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints David Duquette as true and lawful attorney-in-fact
and
agent with full power of substitution and resubstitution and for him/her and
in
his/her name, place and stead, in any and all capacities to sign any and all
amendments (including pre-effective and post-effective amendments) to this
Registration Statement, as well as any new registration statement filed to
register additional securities pursuant to Rule 462(b) under the Securities
Act,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto
said attorney-in-fact and agent full power and authority to do and perform
each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes may lawfully do or cause to be done
by
virtue hereof. In accordance with the requirements of the Securities Act of
1933, registration statement was signed by the following persons in the
capacities and on January 22, 2007.
Signature
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Title
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Date
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/s/ David Duquette |
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Chief
Executive Officer |
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January 23, 2007 |
David
Duquette
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Chief Financial Officer
and
Director |
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/s/ Josef Czikmantori |
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Secretary and Director |
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January 23, 2007 |
Josef
Czikmantori
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