Unassociated Document
SECURITIES
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
o |
TRANSACTION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For
Quarter Ended:
|
Commission
File Number:
|
March
31, 2007
|
0-7722
|
NEW
CENTURY COMPANIES, INC.
(Exact
name of Registrant as specified in its charter)
DELAWARE
|
061034587
|
(State
or other jurisdiction of
|
(IRS
Employer Identification
|
Incorporation
or organization)
|
Number)
|
9835
Santa Fe Springs Road
|
Santa
Fe Springs, CA 90670
|
(Address
of Principal Executive Offices) (Zip
Code)
|
(562)
906-8455
|
(Registrant's
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to filing requirements for the
past 90 days.
Yes x No
o
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes o No x
The
number of shares of Common Stock, par value $0.10 per share, outstanding as
of
March 31, 2007 was 12,264,656.
Transitional
Small Business Disclosure Format (check one): Yes o No
x
PART
I FINANCIAL INFORMATION
|
|
|
|
ITEM
1. FINANCIAL STATEMENTS (Unaudited)
|
|
|
|
The
consolidated Financial Statements are set forth at the end of this
document.
|
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
|
|
|
Consolidated
Balance Sheet
|
F-1
|
|
|
Consolidated
Statements of Operations
|
F-2
|
|
|
Consolidated
Statements of Cash Flows
|
F-3
|
|
|
Notes
to Consolidated Financial Statements
|
F-4
- F-15
|
|
|
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
|
3 |
|
|
ITEM
3. CONTROLS AND PROCEDURES
|
8 |
|
|
PART
II OTHER INFORMATION
|
9 |
|
|
ITEM
1. LEGAL PROCEEDING
|
9 |
|
|
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
9 |
|
|
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
|
9 |
|
|
ITEM
4. SUBMISSION OF MATERS TO A VOTE OF SECURITY HOLDERS
|
9 |
|
|
ITEM
5. OTHER INFORMATION
|
9 |
|
|
ITEM
6. EXHIBITS
|
11 |
ITEM
1. FINANCIAL STATEMENTS
The
consolidated Financial Statements are set forth at the end of this
document.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The
following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere
in
this Form 10-QSB. Certain statements contained herein that are not related
to
historical results, including, without limitation, statements regarding the
Company's business strategy and objectives, future financial position,
expectations about pending litigation and estimated cost savings, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act") and involve risks and uncertainties. Although the
Company believes that the assumptions on which these forward-looking statements
are based are reasonable, there can be no assurance that such assumptions will
prove to be accurate and actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, regulatory
policies, and market and general policies, competition from other similar
businesses, and market and general economic factors. All forward-looking
statements contained in this Form 10-QSB are qualified in their entirety by
this
statement.
OVERVIEW
The
Company is engaged in acquiring, re-manufacturing and selling pre-owned Computer
Numerically Controlled ("CNC") machine tools to manufacturing customers. The
Company provides rebuilt, retrofit and remanufacturing services for numerous
brands of machine tools. The remanufacturing of a machine tool, typically
consisting of replacing all components, realigning the machine, adding updated
CNC capability and electrical and mechanical enhancements, generally takes
two
to four months to complete. Once completed, a remanufactured machine is a "like
new," state-of-the-art machine with a price ranging from $275,000 to $1,000,000,
which is substantially less then the price of a new machine. The Company also
manufactures original equipment CNC large turning lathes and attachments under
the trade name Century Turn.
CNC
machines use commands from onboard computers to control the movements of cutting
tools and rotation speeds of the parts being produced. Computer controls enable
operators to program operations such as part rotation, tooling selection and
tooling movement for specific parts and then store the programs in memory for
future use. The machines are able to produce parts while left unattended.
Because of this ability, as well as superior speed of operation, a CNC machine
is able to produce the same amount of work as several manually controlled
machines, as well as reduce the number of operators required; generating higher
profits with less re-work and scrap. Since the introduction of CNC tooling
machines, continual advances in computer control technology have allowed for
easier programming and additional machine capabilities.
A
vertical turning machine permits the production of larger, heavier and more
oddly shaped parts on a machine, which uses less floor space when compared
to
the traditional horizontal turning machine because the spindle and cam are
aligned on a vertical plane, with the spindle on the bottom.
The
primary industry segments in which the Company’s machines are utilized to make
component parts are in aerospace, power generation turbines, military, component
parts for the energy sector for natural gas and oil exploration and medical
fields. The Company sells its products to customers located in United States,
Canada and Mexico.
Over
the
last four years, the Company has designed and developed a large horizontal
CNC
turning lathe with productivity features new to the metalworking industry.
The
Company believes that a potential market for the Century Turn Lathe, in addition
to the markets mentioned above, is aircraft landing gear.
We
provide our manufactured and remanufactured machines as part of the machine
tool
industry. The machine tool industry worldwide is approximately a 30 billion
dollar business annually. The industry is sensitive to market conditions and
generally trends downward prior to poor economic conditions, and improves prior
to an improvement in economic conditions.
Our
machines are utilized in a wide variety of industry segments as follows:
aerospace, energy, valves, fittings, oil and gas, machinery and equipment,
and
transportation. With the recent downturn in the aerospace industry, we have
seen
an increase in orders from new industries such as defense and medical
industries.
OVERVIEW
OF OPERATIONS
The
Company's current strategy is to expand its customer sales base with its present
line of machine products. The Company's 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. However,
significant growth will require additional funds in the form of debt or equity,
or a combination thereof. The Company's growth strategy also includes strategic
acquisitions in addition to growing the current business. A significant
acquisition will require additional financing.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH
31, 2007 COMPARED TO MARCH 31, 2006.
Revenues.
The Company generated revenues of $3,185,469 for the three months ended March
31, 2007, which was a $1,485,622 or 87% increase from $1,699,847 for the three
months ended March 31, 2006. The increase is the result of an increase in sales
volume and higher selling prices of New Century machines due to a decrease
in
availability for competitive machines.
Gross
Profit. Gross profit for the three months ended March 31, 2007, was $1,185,239
or 37% of revenues, compared to $403,239, or 24% of revenues for the three
months ended March 31, 2006, a 194% increase. The increase in gross profit
is
due to the increased volume of sales and higher selling prices.
Operating
Income. Operating income for the three months ended March 31, 2007, was $465,966
compared to an operating loss of ($51,790) for the three months ended March
31,
2006. The increase of $517,756 or 1000% in operating income is primarily due
to
the increase in sales revenues.
Interest
Expense. Interest expense for the three months ended March 31, 2007, was
$465,241 compared with $395,828 for the three months ended March 31, 2006.
The
18% increase in interest expense is due to a full three months of amortization
in the first quarter of year 2007 compared with one and a half months in the
quarter ended March 31, 2006 of following items:
|
-
|
Approximately
$84,000 of interest expense on convertible
note;
|
|
-
|
Approximately
$292,000 of amortization of debt discounts from beneficial conversion
feature, warrants and a conversion
option;
|
|
-
|
Approximately
$90,000 of amortization of deferred financing costs related to warrants
and common stock granted to third parties as financing cost on convertible
note;
|
all
associated to $3.5 million convertible notes payable issued on February 15,
2006.
FINANCIAL
CONDITION, LIQUIDITY, CAPITAL RESOURCES
The
net
cash increase of the Company during the three months ended March 31, 2007 was
$264,488. The increase is due to net cash provided by operating activities
of
$611,272, offset by $346,784 net cash used in financing activities, cash used
to
pay down the Company’s convertible
notes.
For
the
three months ended March 31, 2007, the cash provided by operating activities
was
$611,272, compared with $788,046 cash used in operating activities in the
corresponding period from 2006. The increase in cash provided by operating
activities is a result of increased sales.
For
the
three months ended March 31, 2007, the cash used in financing activities was
$346,784, compared with $1,075,851 cash provided by financing activities in
the
three months ended March 31, 2006. The decrease of cash provided by financing
activities is primarily due to $3,800,000 of proceeds from the issuance of
two
convertible notes in 2006, compared to no cash proceeds from debt or equity
in
2007.
INFLATION
AND CHANGING PRICES
The
Company does not foresee any adverse effects on its earnings as a result of
inflation or changing prices.
GOING
CONCERN
The
Company has an accumulated deficit of approximately $7,800,000. This condition,
among others, raises substantial doubt about the Company's ability to continue
as a going concern. The
Company intends to fund operations through anticipated increased sales along
with debt and equity financing arrangements. 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.
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect
the
amounts reported in our consolidated financial statements and the accompanying
notes. The amounts of assets and liabilities reported on our balance sheet
and
the amounts of revenues and expenses reported for each of our fiscal periods
are
affected by estimates and assumptions, which are used for, but not limited
to,
the accounting for revenue recognition, accounts receivable, doubtful accounts
and inventories. Actual results could differ from these estimates. The following
critical accounting policies are significantly affected by judgments,
assumptions and estimates used in the preparation of the financial statements:
Revenue
Recognition
Service
revenues are billed and recognized in the period the services are rendered.
The
Company accounts for shipping and handling fees and costs in accordance with
EITF 00-10 "Accounting for Shipping and Handling Fees and Costs." Such fees
and
costs incurred by the Company are immaterial to the operations of the Company.
In
accordance with SFAS 48, "Revenue Recognition when Right of Return Exists,"
revenue is recorded net of an estimate of markdowns, price concessions and
warranty costs. Such reserve is based on management's evaluation of historical
experience, current industry trends and estimated costs.
In
December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 ("SAB 101"), "Revenue Recognition," as amended by SAB No. 104
which
outlines the basic criteria that must be met to recognize revenue and provides
guidance for presentation of revenue and for disclosure related to revenue
recognition policies in financial statements filed with the Securities and
Exchange Commission. Management believes that the Company's revenue recognition
policy for services and product sales conforms to SAB 101 amended by SAB 104.
The Company recognizes revenue of long-term contracts pursuant to SOP 81-1.
Method
of Accounting for Long-Term Contracts
The
Company uses the percentage-of-completion method of accounting to account for
long-term contracts and, therefore, takes into account the cost, estimated
earnings and revenue to date on fixed-fee contracts not yet completed. The
percentage-of-completion method is used because management considers total
cost
to be the best available measure of progress on the contracts. Because of
inherent uncertainties in estimating costs, it is at least reasonably possible
that the estimates used will change within the near term.
The
amount of revenue recognized at the statement date is the portion of the total
contract price that the cost expended to date bears to the anticipated final
cost, based on current estimates of cost to complete. It is not related to
the
progress billings to customers. Contract costs include all materials, direct
labor, machinery, subcontract costs and allocations of indirect overhead.
Because
long-term contracts may extend over a period of time, changes in job
performance, changes in job conditions and revisions of estimates of cost and
earnings during the course of the work are reflected in the accounting period
in
which the facts that require the revision become known. At the time a loss
on a
contract becomes known, the entire amount of the estimated ultimate loss is
recognized in the consolidated financial statements.
Contracts
that are substantially complete are considered closed for consolidated financial
statement purposes. Revenue earned on contracts in progress in excess of
billings (under billings) is classified as a current asset. Amounts billed
in
excess of revenue earned (overbillings) are classified as a current liability.
Estimates
Critical
estimates made by management are, among others, deferred tax asset valuation
allowances, realization of inventories, collectibility of contracts receivable
and the estimating of costs for long-term construction contracts. Actual results
could differ from those estimates.
Classification
Of Warrant Obligation
In
connection with the issuance of the 12% Senior Secured Convertible Notes, the
Company has an obligation to file registration statements covering the
Registrable Securities underlying the warrants issued in connection with the
convertible note, as defined in the Amended and 2nd Amended Registration Rights
Agreements. We evaluated the warrants in accordance with SFAS 133, “Accounting
for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company's Own Stock”, and concluded that the warrants meet all the criteria
required to be classified as equity as of March 31, 2007.
Other
Significant Accounting Policies
Other
significant accounting policies not involving the same level of measurement
uncertainties as those discussed above, are nevertheless important to an
understanding of the financial statements. The policies related to consolidation
and loss contingencies require difficult judgments on complex matters that
are
often subject to multiple sources of authoritative guidance. Certain of these
matters are among topics currently under reexamination by accounting standards
setters and regulators. Although no specific conclusions reached by these
standards setters appear likely to cause a material change in our accounting
policies, outcomes cannot be predicted with confidence. Also see Note 1 of
Notes
to Consolidated Financial Statements, Summary of Significant Accounting
Policies, which discusses accounting policies that must be selected by
management when there are acceptable alternatives.
ITEM
3. CONTROLS AND PROCEDURES
EVALUATION
OF CONTROLS AND PROCEDURES
Under
the
supervision and with the participation of our management, including our Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we evaluated
the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act
as of
a date (the "Evaluation Date") within 90 days prior to filing the Company's
March 31, 2007 Form 10-QSB. Based upon that evaluation, the CEO and CFO
concluded that, as of March 31, 2007, our disclosure controls and procedures
were not effective in timely alerting management to the material information
relating to us (or our consolidated subsidiaries) required to be included in
our
periodic filings with the SEC.
CHANGES
IN CONTROLS AND PROCEDURES
There
were no significant changes made in our internal controls over financial
reporting during the quarter ended March 31, 2007 that have materially affected
or are reasonably likely to materially affect these controls.
LIMITATIONS
ON THE EFFECTIVENESS OF INTERNAL CONTROL
The
Company's management, including the CEO, does not expect that our disclosure
controls and procedures or our internal control over financial reporting will
necessarily prevent all fraud and material errors. An internal control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations on all internal control systems,
no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making
can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, and/or by management override
of
the control. The design of any system of internal control is also based in
part
upon certain assumptions about the likelihood of future events, and there can
be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, controls may become inadequate
because of changes in circumstances, and/or the degree of compliance with the
policies and procedures may deteriorate. Because of the inherent limitations
in
a cost-effective internal control system, financial reporting misstatements
due
to error or fraud may occur and not be detected on a timely basis.
PART
II.
OTHER INFORMATION
Item
1.
Legal Proceedings
None.
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds
During
the quarter ended March 31, 2007, the Company issued 150,000 shares of common
stock to Wall Street Savant, LLC, for investor marketing services, 100,000
shares of common stock to Quarum Capital Services, Inc, for financial consulting
services, and 300,000 shares of common stock to Investor Relation International,
for investor relation services.
The
shares were issued pursuant to an exemption from the registration rights of
the
Securities Act of 1933, as amended, Section 4(2) of the Act.
Item
3.
Defaults Upon Senior Securities
None.
Item
4.
Submission of Matters to a Vote of Security Holders
None.
Item
5.
Other Information
The
Company is in process of filing a registration statement.
Item
6.
Exhibits
|
Exhibit
31.1 |
Section
302 Sarbanes Oxley Certification
|
|
Exhibit
32.1 |
Section
906 Sarbanes Oxley Certification
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEET
March
31, 2007
(Unaudited)
ASSETS
|
|
|
|
|
Current
Assets
|
|
|
|
|
Cash
|
|
$
|
317,806
|
|
Contract
receivables
|
|
|
473,693
|
|
Inventories,
net
|
|
|
1,333,056
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
872,335
|
|
Deferred
financing costs, net
|
|
|
358,292
|
|
Prepaid
expenses and other current assets
|
|
|
7,404
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,362,586
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
256,529
|
|
Deferred
Financing Costs, net
|
|
|
328,436
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,947,551
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Bank
Overdraft
|
|
$
|
34,090
|
|
Accounts
payable and accrued expenses
|
|
|
1,199,491
|
|
Dividends
payable
|
|
|
362,800
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
399,710
|
|
Notes
payable
|
|
|
12,000
|
|
Convertible
notes payable, net of discount
|
|
|
237,223
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,245,314
|
|
|
|
|
|
|
Convertible
Notes Payable, net of discount
|
|
|
210,000
|
|
|
|
|
|
|
|
|
|
|
|
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 $933,000)
|
|
|
27,780
|
|
Cumulative,
convertible, Series D preferred stock, $25 par value,
|
|
|
|
|
75,000
shares authorized, 11,640 shares issued and outstanding
|
|
|
|
|
(liquidation
preference of $416,000)
|
|
|
291,000
|
|
Common
stock, $0.10 par value, 50,000,000 shares authorized;
|
|
|
|
|
12,264,656
shares issued and outstanding
|
|
|
1,226,466
|
|
Subscriptions
receivable
|
|
|
(462,500
|
)
|
Notes
receivable from stockholders
|
|
|
(532,402
|
)
|
Deferred
consulting fees
|
|
|
(234,092
|
)
|
Additional
paid-in capital
|
|
|
8,995,064
|
|
Accumulated
deficit
|
|
|
(7,819,079
|
)
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
1,492,237
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' equity
|
|
$
|
3,947,551
|
|
See
accompanying notes to the consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Three Months Ended March 31, 2007 and 2006
(Unaudited)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
CONTRACT
REVENUES
|
|
$
|
3,185,469
|
|
$
|
1,699,847
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
2,000,230
|
|
|
1,296,608
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
1,185,239
|
|
|
403,239
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
Consulting
and other compensation
|
|
|
429,363
|
|
|
203,058
|
|
Salaries
and related
|
|
|
116,634
|
|
|
64,331
|
|
Selling,
general and administrative
|
|
|
173,276
|
|
|
187,640
|
|
TOTAL
OPERATING EXPENSES
|
|
|
719,273
|
|
|
455,029
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
465,966
|
|
|
(51,790
|
)
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES
|
|
|
|
|
|
|
|
Loss
on forgiveness of debt
|
|
|
(11,688
|
)
|
|
-
|
|
Derivative
liability expense
|
|
|
-
|
|
|
(764,762
|
)
|
Interest
expense, including debt discount amortization
|
|
|
(465,241
|
)
|
|
(395,828
|
)
|
|
|
|
|
|
|
|
|
TOTAL
OTHER EXPENSES
|
|
|
(476,929
|
)
|
|
(1,160,590
|
)
|
|
|
|
|
|
|
|
|
LOSS
BEFORE PROVISION FOR
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
(10,963
|
)
|
|
(1,212,380
|
)
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(10,963
|
)
|
$
|
(1,212,380
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS APPLICABLE
|
|
|
|
|
|
|
|
TO
COMMON STOCKHOLDERS
|
|
$
|
(10,963
|
)
|
$
|
(924,505
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss available to
|
|
|
|
|
|
|
|
common
stockholders per common share
|
|
|
.0.00
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
11,983,543
|
|
|
10,803,611
|
|
See
accompanying notes to the consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Three Months Ended March 31, 2007 and 2006
(Unaudited)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(10,963
|
)
|
$
|
(1,212,380
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
28,578
|
|
|
39,028
|
|
Amortization
of deferred financing costs
|
|
|
89,574
|
|
|
57,466
|
|
Amortization
of Beneficial Conversion Features and other debt discounts
|
|
|
291,667
|
|
|
249,123
|
|
Amortization
of deferred consulting fees
|
|
|
98,977
|
|
|
137,039
|
|
Estmated
fair market value of common stock issued for consulting services
|
|
|
|
|
|
|
|
and
related change in fair value
|
|
|
247,500
|
|
|
-
|
|
Derivative
liability expense
|
|
|
-
|
|
|
764,762
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Contracts
receivable
|
|
|
(170,151
|
)
|
|
(625,005
|
)
|
Inventories
|
|
|
(212,874
|
)
|
|
(112,985
|
)
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
288,333
|
|
|
132,622
|
|
Prepaid
expenses and other current assets
|
|
|
12,801
|
|
|
(2,083
|
)
|
Notes
receivable from stockholders
|
|
|
(7,000
|
)
|
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
8,031
|
|
|
(277,456
|
)
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
(53,201
|
)
|
|
61,823
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used in) operating activities
|
|
|
611,272
|
|
|
(788,046
|
)
|
|
|
|
|
|
|
|
|
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
|
|
|
123,898
|
|
|
(1,500,000
|
)
|
Bank
overdraft
|
|
|
15,318
|
|
|
(27,649
|
)
|
Proceeds
of issuance of convertible notes payable
|
|
|
-
|
|
|
3,800,000
|
|
Principal
payments on notes payable
|
|
|
(486,000
|
)
|
|
(774,000
|
)
|
Deferred
financing costs
|
|
|
-
|
|
|
(422,500
|
)
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(346,784
|
)
|
|
1,075,851
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
264,488
|
|
|
267,805
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
53,318
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
317,806
|
|
$
|
267,805
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued for deferred financing costs
|
|
$
|
-
|
|
$
|
641,790
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable and interest to common stock
|
|
$
|
-
|
|
$
|
157,500
|
|
|
|
|
|
|
|
|
|
BCF
and other debt discount on convertible notes payable
|
|
$
|
-
|
|
$
|
3,800,000
|
|
|
|
|
|
|
|
|
|
Debt
discount on notes payable for note extension
|
|
$
|
-
|
|
$
|
18,900
|
|
|
|
|
|
|
|
|
|
Waived
cumulative dividends on preferred stock
|
|
$
|
-
|
|
$
|
(287,875
|
)
|
See
accompanying notes to the consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
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
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 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, 2006, 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 March 31, 2007,
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 three moths ended March 31, 2007 are not
necessarily indicative of the results for the full year ending December 31,
2007.
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. The Company has an accumulated deficit of approximately
$7,800,000. This factor, among others, raises substantial doubt about the
Company's ability to continue as a going concern. The Company intends to fund
operations through anticipated increased sales along with 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, 2007. 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.
|
The
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.
As of
March 31, 2007, the Company’s inventory
was
determined to be approximately $1,333,000 net, based on approximately $197,000
cost of labor, $825,000 cost of materials, $121,000 cost of subcontracted
services, $476,000 overhead cost, offset by $286,000 reserve for estimated
markdowns cost of inventory.
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
statements 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." Shipping and handling fees and costs incurred by
the
Company are immaterial to the operations of the Company and are included in
cost
of sales.
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 for markdowns, price concessions and warranty costs. Such reserve
is
based on management's evaluation of historical experience, current industry
trends and estimated costs. As of March 31, 2007, the Company estimated the
markdowns, price concessions and warranty costs and concluded that are
immaterial and did not record any adjustment to revenues.
Basic
And Diluted 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..
Common
stock equivalents, representing convertible Preferred Stock, convertible debt,
options and warrants totaling
approximately
8,240,816 shares at March 31, 2007 are not included in the diluted loss per
share as they would be anti-dilutive. Accordingly, diluted and basic loss per
share are the same for March 31, 2007. There were 2,025,451 potentially dilutive
and 13,392,330 potential common shares that were excluded from the diluted
earnings per share calculation.
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
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.
$86,400 and $0 of share-based compensation expense was recognized in the
accompanying consolidated financial statements for the three month periods
ended
March 31, 2007 and 2006, respectively.
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.
Under
the
terms of the Company's non-statutory stock option plan, 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.
On
November 13, 2006, the Company granted 2,000,000 options to key employees.
At
March 31, 2007, the Company had 1,750,000 options available for future issuance
under their equity compensation plans.
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 March 31, 2007 is recognized
in the period the forfeiture estimate is changed.
At
March
31, 2007, the Company estimated (using the Black Scholes pricing model) the
fair
value of options granted and no variance has been found. Therefore, the effect
of forfeiture adjustments at the period ended March 31, 2007 was not
applicable.
Options
outstanding that have vested and are expected to vest as of March 31, 2007
are
as follows:
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
in Years
|
|
Aggregate
Intrinsic
Value
(1)
|
|
Vested
|
|
|
1,250,000
|
|
$
|
0.32
|
|
|
1.35
|
|
$
|
--
|
|
Expected
to vest
|
|
|
2,000,000
|
|
$
|
0.20
|
|
|
4.62
|
|
$
|
--
|
|
Total
|
|
|
3,250,000
|
|
|
|
|
|
|
|
$
|
--
|
|
(1)
These
amounts represent the difference between the exercise price and $0.32, the
closing market price of the Company's common stock on March 31, 2007 as quoted
on the Over-the-Counter Bulletin Board under the symbol "NCNC.OB" for all
in-the-money options outstanding.
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
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
|
|
Intrinsic
Value
(1)
|
|
December
31, 2006
|
|
|
1,750,000
|
|
|
3,250,000
|
|
$
|
0.25
|
|
$
|
130,000
|
|
Grants
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Exercises
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Cancellations
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
March
31, 2007
|
|
|
1,750,000
|
|
|
3,250,000
|
|
$
|
0.25
|
|
$
|
--
|
|
Options
exercisable at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
|
|
|
1,250,000
|
|
$
|
0.32
|
|
|
|
|
(1)
Represents the added value as difference between the exercise price and the
closing market price of the Company's common stock at the end of the reporting
period (as of December 31, 2006 and March 31, 2007 the market price of the
Company's common stock was $0.21 and $0.32, 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 to
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.
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. During the
three month periods ended March 31, 2007, the Company did not grant any options
or warrants.
The
following is a status of the warrants outstanding at March 31, 2007 and the
changes during the three months ended March 31, 2007:
|
|
|
|
Weighted
|
|
|
|
Warrants
|
|
Average
Price
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2006
|
|
|
6,403,728
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Cancelled/Terminated
|
|
|
(25,000
|
)
|
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
Total
Outstanding, March 31, 2007
|
|
|
6,378,728
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
Exercisable,
March 31, 2007
|
|
|
6,378,728
|
|
|
0.57
|
|
Deferred
Financing Costs
Direct
costs of securing debt financing are capitalized and amortized over the term
of
the related debt. 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 March 31, 2007 and 2006, the Company amortized approximately
$292,000 and $97,000, respectively, to interest expense.
Beneficial
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.
Classification
Of Warrant Obligation
In
connection with the issuance of the 12% Senior Secured Convertible Notes, the
Company has an obligation to file registration statements covering the
Registrable Securities underlying the warrants issued in connection with the
convertible note, as defined in the Amended 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 March 31, 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 has been evaluated at each reporting
date and reported as a liability until such time all of the criteria necessary
for equity classification were met. The warrant liability was recorded
originally, on February 28, 2006, the issuance date, at $2,190,000, and adjusted
market-to-market every quarter to aproximatelly $2,955,000, $2,155,000,
$1,321,000 and $695,000 at the quarter ended March 31, 2006, June 30, 2006,
September 30, 2006, and December 19, 2006, correspondingly. The market-to-market
adjustment was reversed to derivative liability expense.
On
December 19, 2006, the Company entered into an amended agreement with the
warrant holder, CAMOFI Master LDC, where by the warrant holder agreed to waive
all liquidated damages incurred as a result of the Company’s inability to file a
registration statement to register the shares underlying the warrants. In
addition, a limit was placed on the amount of liquidated damages to be incurred
in the event the Company fails to have an effective registration statement
within the time period required by the amended agreement.
The
liquidated damages would be limited to 10% of the outstanding balance of the
note. As a result, the warrants met all the criteria outlined in EITF 00-19
to
be classified as equity. Accordingly, the warrants were reclassified to equity
at December 19, 2006, and the $695,000 fair value of warrant liability was
credited to additional paid in capital.
Management
evaluated the warrants in accordance with SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock”, and concluded that the warrants meet all the criteria required to be
classified as equity.
Income
Taxes
We
adopted the provisions of Financial Standards Accounting Board Interpretation
No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation
of FASB Statement No. 109 ("SFAS 109") on January 1, 2007. The implementation
of
FIN 48 did not result in any adjustment to the Company's beginning tax
positions. The Company continues to fully recognize its tax benefits which
are
offset by a valuation allowance to the extent that it is more likely than not
that the deferred tax assets will not be realized. As of March 31, 2007, the
Company did not have any unrecognized tax benefits. The Company files a
consolidated federal income tax return in the U.S. The Company
files a separate income tax return in the State of California. The Company
is no
longer subject to U.S. federal tax examinations for the years before
2004.
Significant
Recent Accounting Pronouncements
On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115.” This standard permits an entity to measure many financial
instruments and certain other items at estimated fair value. Most of the
provisions of SFAS No. 159 are elective; however, the amendment to SFAS No.
115
(“Accounting for Certain Investments in Debt and Equity Securities”) applies to
all entities that own trading and available-for-sale securities. The fair value
option created by SFAS No. 159 permits an entity to measure eligible items
at
fair value as of specified election dates. Among others, eligible items exclude
(1) financial instruments classified (partially or in total) as permanent or
temporary stockholders’ equity (such as a convertible debt security with a
non-contingent beneficial conversion feature) and (2) investments in
subsidiaries and interests in variable interest entities that must be
consolidated. A for-profit business entity will be required to report unrealized
gains and losses on items for which the fair value option has been elected
in
its consolidated statements of operations at each subsequent reporting date.
The
fair
value option (a) may generally be applied instrument by instrument, (b) is
irrevocable unless a new election date occurs, and (c) must be applied to the
entire instrument and not to only a portion of the instrument. SFAS No. 159
is
effective as of the beginning of the first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of the
previous fiscal year provided that the entity (i) makes that choice in the
first
120 days of that year, (ii) has not yet issued financial statements for any
interim period of such year, and (iii) elects to apply the provisions of SFAS
No. 157 (“Fair Value Measurements”). The adoption of SFAS No. 159 is not
expected to have a significant impact on future financial
statements.
2.
CONTRACTS IN PROGRESS
Contracts
in progress as of March 31, 2007 which include completed contracts not
completely billed represent the following:
Cumulative
costs to date
|
|
$
|
3,910,000
|
|
Cumulative
gross profit to date
|
|
|
4,123,000
|
|
Cumulative
revenue earned
|
|
|
8,033,000
|
|
Less
progress billings to date
|
|
|
(7,560,000
|
)
|
Net
under billings
|
|
$
|
473,000
|
|
The
following is included in the accompanying consolidated balance sheet under
these
captions as of March 31, 2007:
Costs
and estimated earnings in excess of billings
|
|
|
|
|
on
uncompleted contracts
|
|
$
|
873,000
|
|
Billings
in excess of costs and estimated earnings
|
|
|
|
|
on
uncompleted contracts
|
|
|
(400,000
|
)
|
Net
under billings
|
|
$
|
473,000
|
|
During
the three months ended March 31, 2006, the Company recorded approximately
$1,007,000 of finance charges in relation to the unamortized portion of deferred
financing costs for the debt financings.
During
the three months ended March 31, 2006, the Company amortized approximately
$97,000 of debt discounts, including beneficial conversion features, to interest
expense.
During
the three months ended March 31, 2007, the Company amortized approximately
$292,000 of debt discounts, including beneficial conversion features, to
interest expense.
During
the three months ended March 31, 2006, the Company made cash payments of
$24,000
to reduce the principal balance on one of its outstanding secured notes payable.
As of March 31, 2006, the balance of the note was $156,000.
During
the three months ended March 31, 2006, the Company did not made any principal
payments on one of its secured convertible note payable. As of March 31,
2006, the balance of the note was $3,500,000.
Also,
during the three months ended March 31, 2006, the Company made cash payments
of
$300,000 to reduce the principal balance on one of its outstanding convertible
notes payable. As of March 31, 2006, the principal balance on that note was
$300,000.
During
the three months ended March 31, 2007, the Company made cash payments of $36,000
to reduce the principal balance on one of its outstanding secured notes payable.
As of March 31, 2007, the balance of the note is $12,000 which is included
in
the notes payable section of the accompanying consolidated balance
sheet.
During
the three months ended March 31, 2007, the Company made cash payments of
$350,000 to reduce the principal balance on one of its outstanding secured
convertible notes payable. As of March 31, 2007, the principal balance is
approximately $2,683,000 which is presented net of debt discounts totaling
approximately $2,236,000.
Also,
during the three months ended March 31, 2007, the Company made cash payments
of
$100,000 to pay in full the principal balance on one of its outstanding
convertible notes payable.
4.
EQUITY TRANSACTIONS
During
the quarter ended March 31, 2006, the Company issued 150,000 warrants valued
at
$127,500 (estimated using a Black-Scholes option pricing model on the dates
of
grant) to a third party for consulting services. Approximately $10,000 was
recorded as consulting expense during the quarter ended March 31, 2006 and
approximately $117,500 remained unamortized as deferred consulting fees at
March
31, 2006, which was recorded as an offset to stockholders’
equity.
During
March 2006, the Company paid $900,000 in cash and issued 250,000 shares
of
restricted common stock to one of its creditors to settle the outstanding
principal balance and accrued interest on two defaulted notes payable, totaling
approximately $1,041,000. The Company recorded the stock at fair value
(estimated based on the trading price of the Company's stock on the date of
grant) totaling $157,500. The value of the stock issued and the cash paid
exceeded the value of the amount of the outstanding debt and accrued interest
by
approximately $17,000. Such amount which was recorded as a loss on debt
extinguishment and included in selling, general and administrative expenses
in
the accompanying condensed consolidated statement of operations for the quarter
ended March 31, 2006.
As
described in Note 1, the Company enters into equity based compensation
arrangements with non-employees where the value of the services are not readily
determinable and the fair value of the equity instruments is more reliably
measurable. Under most of these arrangements, the performance criteria required
for a measurement date is not reached until the service period has been
completed. As a result, the Company is required to re-measure the consideration
at each reporting date based on its then current stock value. During the quarter
ended March 31, 2006, the Company recorded net increases to the fair values
of
such equity based compensation arrangements of approximately
$115,000.
During
the quarter ended March 31, 2006, the Company recorded approximately $137,000
of
consulting expense related to the amortization of deferred consulting fees
on
equity based compensation arrangements with third parties.
At
March
31, 2006, the Company had a total of 28,980 preferred shares Series C and 11,640
preferred shares Series D issued and outstanding. As of December 31, 2005,
the
Company accumulated dividends totaling $565,875.
In
March
2006, ten of the Company's preferred shareholders elected to waive their rights
to receive dividends. Therefore, the Company recorded a decrease in dividends
payable of $287,875.
In
February 2007, the Company issued 150,000 shares of common stock valued at
$60,000 (based on the market price of the shares on the date the services were
completed in accordance with EITF 96-18) to a third party for investor marketing
services under a one month contract.
In
February 2007, the Company issued 100,000 shares of common stock valued at
$36,000 (based on the market price of the shares on the date the services were
completed in accordance with EITF 96-18) to a third party for financial
consulting services under a 13 day contract.
In
February 2007, the Company issued 300,000 shares of common stock valued at
$126,000 (based on the market price of the shares on the date the services
were
completed in accordance with EITF 96-18) to a third party for investor relation
services under a one month contract.
All
the
above three contracts were recorded as public company expense in the quarter
ended March 31, 2007 in the accompanying consolidated statements of
operations.
As
described in Note 1, the Company enters into equity based compensation
arrangements with non-employees where the value of the services are not readily
determinable and the fair value of the equity instruments is more reliably
measurable. Under most of these arrangements, the performance criteria required
for a measurement date is not reached until the service period has been
completed. As a result, the Company is required to re-measure the consideration
at each reporting date based on its then current stock value. During the quarter
ended March 31, 2007, the Company recorded net increases to the fair values
of
such equity based compensation arrangements of approximately
$25,000.
During
the quarter ended March 31, 2007, the Company recorded approximately $98,800
of
consulting expense related to the amortization of deferred consulting fees
on
equity based compensation arrangements with third parties.
The
preferred shares Series C and preferred shares Series D shares 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.
At
March
31, 2007, the Company had a total of 27,780 preferred shares Series C and 11,640
preferred shares Series D issued and outstanding. As of December 31, 2006,
the
Company has accumulated dividends totaling $362,800. During the quarters ended
March 31, 2006 and March 31, 2007, the Company did not accrue any
dividends.
5.
SUBSEQUENT EVENTS
On
May 1,
2007, the Company entered into an Amended and Restated Registration Rights
Agreement (the “2nd
Amendment”) with CAMOFI. Pursuant to the Amendment, CAMOFI agreed to waive any
liquidated damages prior to the date of the 2nd
Amendment. Also, within 30 days after the date of the 2nd
Amendment, the Company agreed to file a registration statement to cover the
resale of the shares issuable upon conversion of the CAMOFI Note up to 33%
of
the Company’s issued and outstanding stock, and, in 90 days after the date of
filing, to have the registration statement declared effective by the Security
Exchange Commission.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Company caused
this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
NEW CENTURY COMPANIES,
INC. |
|
|
|
Date:
May 14,
2007 |
|
/s/
DAVID DUQUETTE |
|
Name:
David Duquette
|
|
Title:
Chairman, President and
Director
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.
|
|
|
|
|
|
Date:
May 14,
2007 |
|
/s/
DAVID DUQUETTE |
|
Name:
David Duquette
|
|
Title:
Chairman, President and
Director
|
|
|
|
|
|
|
Date:
May 14,
2007 |
|
/s/
JOSEF CZIKMANTORI |
|
Name:
Josef Czikmantori
|
|
Title:
Secretary and Director
|