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:
|
September
30, 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
September 30, 2007 was 13,444,656.
Transitional
Small Business Disclosure Format (check one): Yes o No x
Table
of Contents
PART
I
FINANCIAL INFORMATION
ITEM
1.
FINANCIAL STATEMENTS (Unaudited)
The
condensed consolidated Financial Statements are set forth at the end of this
document.
Condensed
Consolidated Balance Sheet
|
F-1
|
|
|
Condensed
Consolidated Statements of Operations
|
F-2
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
F-3
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
F-4
- F-16
|
ITEM
2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
ITEM
3.
CONTROLS AND PROCEDURES
PART
II
OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDING
ITEM
2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
ITEM
4.
SUBMISSION OF MATERS TO A VOTE OF SECURITY HOLDERS
ITEM
5.
OTHER INFORMATION
ITEM
6.
EXHIBITS
ITEM
1. FINANCIAL STATEMENTS
The
unaudited condensed 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 unaudited
condensed 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 an equivalent 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.
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. As of September
30, 2007, the Company’s working capital is $626,935. 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 SEPTEMBER 30, 2007 COMPARED TO
SEPTEMBER 30, 2006.
Revenues.
The
Company generated revenues of $1,414,269 for the three months ended September
30, 2007, which was a $581,862 or 29% decrease from $1,996,131 for the three
months ended September 30, 2006. The decrease is the result of slower than
usual
summer sales and a tighter credit market.
Gross
Profit.
Gross
profit for the three months ended September 30, 2007, was negative $34,561
or 2%
of revenues, compared to a positive $368,900 or 18% of revenues for the three
months ended September 30, 2006, a 109% decrease. The decrease in gross profit
is due to the rework of three remanufactured machines which needed
additional labor cost.
Operating
Loss.
Operating loss for the three months ended September 30, 2007, was $457,790
compared to operating loss of $18,661 for the three months ended September
30,
2006. The increase in loss of $439,129 is primarily due to decreased revenues
for the quarter ended September 30, 2007.
Interest
Expense and Debt Discount Amortization.
Interest
expense for the three months ended September 30, 2007, was $475,188 compared
with $514,302 for the three months ended September 30, 2006. The decrease of
$39,114 in interest expenses is due to a decrease in the balance outstanding
on
Convertible Note by payments or conversion of principal. The details of interest
expenses for the three months ended September 30, 2007 are presented in the
Table below.
Liquidated
Damages Expense.
The
Company accrued approximately $55,000 of liquidated damages during the quarter
ended September 30, 2007 on the CAMOFI $2.2 million convertible debt as a
penalty for failure to respond within 14 calendar days to Securities Exchange
Commission comments, made in respect to the Registration Statement, compared
with $420,000 of liquidated damages during the quarter ended September 30,
2006
on the same CAMOFI debt as a penalty for failure to have a registration
statement declared effective as required by our previous financing (See
Registration Rights Obligation section).
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
|
INTEREST
AND LIQUIDATED DAMAGES EXPENSES
|
For
the Three Months Ended September 30, 2007 and
2006
|
(Unaudited)
|
(Rounded
to nearest thousand)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months
Ended
September 30,
|
|
Variance
|
|
|
|
2007
|
|
2006
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.5
million convertible note
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount (non-cash expense)
|
|
$
|
252,000
|
*
|
$
|
292,000
|
|
$
|
(40,000
|
)
|
|
-14
|
%
|
Amortization
of deferred financing fees (non-cash expense)
|
|
|
90,000
|
|
|
84,000
|
|
|
6,000
|
|
|
7
|
%
|
Interest
on note
|
|
|
133,000
|
|
|
100,000
|
|
|
33,000
|
|
|
33
|
%
|
Liquidated
damages accrued for failure to register common stock conform with
Registration Rights Agreement of convertible note holders (non-cash
expense)
|
|
|
55,000
|
|
|
420,000
|
|
|
(365,000
|
)
|
|
-87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$300,000
convertible note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount (non-cash expense)
|
|
|
-
|
|
|
-
|
|
|
0
|
|
|
-
|
|
Amortization
of deferred financing and extension fees (non-cash
expense)
|
|
|
-
|
|
|
21,000
|
|
|
(21,000
|
)
|
|
-100
|
%
|
Interest
on note
|
|
|
-
|
|
|
17,000
|
|
|
(17,000
|
)
|
|
-100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and adjustments on other notes payable and leases
|
|
|
1,000
|
|
|
800
|
|
|
200
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
531,000
|
|
$
|
934,800
|
|
$
|
(403,800
|
)
|
|
-43
|
%
|
RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO SEPTEMBER
30, 2006.
Revenues.
The
Company generated revenues of $7,199,885 for the nine months ended September
30,
2007, a $1,206,134 or a 20% increase from $5,993,751 for the nine months ended
September 30, 2006. The increase is the result of higher sales volume and higher
selling prices of New Century machines on the first and second quarter of the
fiscal year 2007.
Gross
Profit.
Gross
profit for the nine months ended September 30, 2007, was $1,861,680 or 26%
of
revenues, compared to $1,578,860, or 26% of revenues for the nine months ended
September 30, 2006, a 18% increase. The increase in gross profit is the result
of increased sales during the first six months of the year 2007.
Operating
Income.
Operating income for the nine months ended September 30, 2007, was $200,792
compared to operating income of $276,027 for the nine months ended September
30,
2006. The decrease of 27% in operating income is due primarily to an increase
in
consulting expenses for public relations and marketing services.
Interest
Expense and Debt Discount Amortization.
Interest
expense for the nine months ended September 30, 2007 was $1,662,702 compared
to
$1,560,740 for the nine months ended September 30, 2006, an increase of $101,962
. The decrease in interest expenses is due to decrease of balance outstanding
on
Convertible Note by payments or conversion of principal. (The details of
interest expense for the nine months ended September 30, 2007 are presented
below.)
Liquidated
Damages Expense.
The
Company accrued approximately $55,000 of liquidated damages during the nine
months ended September 30, 2007 on the CAMOFI $2.2 million convertible debt
as a
penalty for failure to respond within 14 calendar days to Securities Exchange
Commission comments, made in respect to the Registration Statement, compared
with $582,500 of liquidated damages during the nine months ended September
30,
2006 on the same CAMOFI debt as a penalty for failure to have a registration
statement declared effective as required by our previous financing (See
Registration Rights Obligation section).
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
|
INTEREST
AND LIQUIDATED DAMAGES EXPENSES
|
For
the Nine Months Ended September 30, 2007 and
2006
|
(Unaudited)
|
(Rounded
to nearest thousand)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months
Ended
September 30,
|
|
Variance
|
|
|
|
2007
|
|
2006
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.5
million convertible note
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount (non-cash expense)
|
|
$
|
1,100,000
|
*
|
$
|
700,000
|
|
$
|
400,000
|
|
|
57
|
%
|
Amortization
of deferred financing fees (non-cash expense)
|
|
|
269,000
|
|
|
196,000
|
|
|
73,000
|
|
|
37
|
%
|
Interest
on note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-cash
conversion into stock
|
|
|
74,000
|
|
|
-
|
|
|
74,000
|
|
|
|
|
cash
payments and accrual
|
|
|
217,000
|
|
|
234,000
|
|
|
(17,000
|
)
|
|
-7
|
%
|
Liquidated
damages accrued for failure to register common stock conform with
Registration Rights Agreement of convertible note holders (non-cash
expense)
|
|
|
55,000
|
|
|
583,000
|
|
|
(528,000
|
)
|
|
-91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$300,000
convertible note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount (non-cash expense)
|
|
|
-
|
|
|
300,000
|
|
|
(300,000
|
)
|
|
-100
|
%
|
Amortization
of deferred financing and extension fees (non-cash
expense)
|
|
|
-
|
|
|
76,000
|
|
|
(76,000
|
)
|
|
-100
|
%
|
Interest
on note
|
|
|
-
|
|
|
47,000
|
|
|
(47,000
|
)
|
|
-100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and adjustments on other notes payable and leases
|
|
|
3,000
|
|
|
3,800
|
|
|
(800
|
)
|
|
-21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,718,000
|
|
$
|
2,139,800
|
|
$
|
(421,800
|
)
|
|
-20
|
%
|
*
Includes $278,000 of interest expense due to debt discount reduction related
to
$350,000 conversion of principal of the CAMOFI Note in to Company's common
stock
FINANCIAL
CONDITION, LIQUIDITY, CAPITAL RESOURCES
The
net
cash decrease during the nine months ended September 30, 2007 was $34,771.
The
decrease is due to $624,500 cash used in financing activities to pay down the
Companies notes payable and to $32,225 net cash used in investing activities.
For
the
nine months ended September 30, 2007, the cash provided by operating activities
was $476,323, compared with $1,590,530 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 in the first six months of
2007.
For
the
nine months ended September 30, 2007, the cash used in financing activities
was
$478,869, compared with $1,670,874 cash provided by financing activities in
the
nine months ended September 30, 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.
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 an accumulated deficit of approximately $9,200,000.
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
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.
INFLATION
AND CHANGING PRICES
The
Company does not foresee any adverse effects on its earnings as a result of
inflation or changing prices.
REGISTRATION
RIGHTS OBLIGATION
On
December 19, 2006, we entered into an Amended and Restated Registration Rights
Agreement (the “Amended and Restated Agreement”) with CAMOFI. Pursuant to the
Amended and Restated Agreement 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, 2007, 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; and (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.
On
May 1,
2007, the Company entered into an Amended and Restated Registration Rights
Agreement (the “2nd
Amendment”) with CAMOFI, the holder of 12% Senior Secured Convertible Note.
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 Securities
and Exchange Commission. Pursuant to the Second Amended and Restated
Registration Rights Agreement, CAMOFI agreed to waive any liquidated damages
accrued prior to the date of the Amendment. However, the failure to timely
file
the Registration Statement and have the registration statement declared
effective, 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.
On
July
17, 2007, The
Company requested
pursuant
to Rule 477 under the Securities Act of 1933, as amended, that the Securities
and Exchange Commission (the “Commission”) consent to the withdrawal by the
Company of its
Registrant's Registration Statement on Form SB-2 filed with the Commission
on
May 31, 2007 (File No. 333-143388) (the "Registration Statement").
The
Company requested the withdrawal because it has elected to renegotiate certain
provisions of the Registration Rights Agreement with the Selling Stockholders
and has determined not to pursue with the registration of the securities
included in the Registration Statement at this time. No securities were offered
or sold pursuant to the Registration Statement.
On
July
18, 2007, in view of the Securities and Exchange Commission’s (the “SEC”)
position and interpretation of Rule 415 promulgated by the SEC pursuant to
the
Securities Act of 1933, as amended, CAMOFI waived its rights to have the Company
register 33% of its issued and outstanding shares in the Registration statement
that the Company filed on May 31, 2007 (the “Registration Statement”), as
required by the May 1, 2007 Amended and Restated Registration Rights Agreement,
and agreed to the inclusion of 3,000,000 shares of common stock of the Company
representing 27% of the public float of the Company in the New Registration
Statement, as described in the following paragraph. All of the other provisions
of the Registration Rights Agreement remained the same.
On
July
19, 2007 the Company filed a new registration statement on Form SB-2 with the
Securities and Exchange Commission for registration of 3,000,000 shares of
selling shareholders common stock.
On
October 18, 2007 the Company filed an amended registration statement on Form
SB-2 with the Securities and Exchange Commission to answer to SEC comments
on
the registration statement filed on July 19, 2007.
We
are
currently not in compliance with our obligations under the Second Amended and
Restated Agreement to have this Registration Statement declared effective within
90 days of filing and to respond to comments of the SEC within 14 calendar
days
after receipt. If we do not obtain a waiver of such default by CAMOFI we will
be
obligated to pay liquidated damages to CAMOFI as described above. We
currently accrued $55,417 of liquidated damages.
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
accounting policies stated below 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 recorded to cost of goods sold and 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 (over billings) are classified as a current liability.
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
September 30, 2007, the company’s inventory was determined to be approximately
$1,490,000 net, based on approximately $204,000 cost of labor, $913,000 cost
of
materials, $117,000 cost of subcontracted services, $542,000 overhead cost,
offset by a $286,000 reserve for estimated markdowns on inventory
costs.
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.
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
September 30, 2007 Form 10-QSB. Based upon that evaluation, the CEO and CFO
concluded that, as of September 30, 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 September 30, 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
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
None.
Item
3.
Defaults Upon Senior Securities
Starting
July 2007, the Company is in default with all monthly payments on CAMOFI
Convertible Note payable.
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 for Chief Executive
Officer
Exhibit
31.2 Section 302 Sarbanes Oxley Certification for Chief Financial
Officer
Exhibit
32.1 Section 906 Sarbanes Oxley Certification
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
|
CONDENSED
CONSOLIDATED BALANCE SHEET
|
September
30, 2007
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
|
$
|
18,547
|
|
Contract
receivables
|
|
|
669,393
|
|
Inventories,
net
|
|
|
1,489,865
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
605,195
|
|
Deferred
financing costs, net
|
|
|
358,292
|
|
Prepaid
expenses and other current assets
|
|
|
21,902
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,163,194
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
300,830
|
|
Deferred
Financing Costs Long Term, net
|
|
|
149,288
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,613,312
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Bank
Overdraft
|
|
$
|
40,505
|
|
Accounts
payable and accrued liabilities
|
|
|
1,347,372
|
|
Dividends
payable
|
|
|
335,450
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
284,458
|
|
Lease
payable
|
|
|
29,988
|
|
Convertible
notes payable, net of discount
|
|
|
498,486
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,536,259
|
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
|
Lease
payable - long term portion
|
|
|
39,355
|
|
Convertible
notes payable, net of discount
|
|
|
290,783
|
|
|
|
|
|
|
Total
long term liabilities
|
|
|
330,138
|
|
|
|
|
|
|
|
|
|
|
|
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, 26,880 shares issued and outstanding
|
|
|
|
|
(liquidation
preference of $933,000)
|
|
|
26,880
|
|
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;
|
|
|
|
|
13,444,656
shares issued and outstanding
|
|
|
1,344,466
|
|
Subscriptions
receivable
|
|
|
(462,500
|
)
|
Notes
receivable from stockholders
|
|
|
(553,402
|
)
|
Deferred
consulting fees and employees stock option expense
|
|
|
(284,270
|
)
|
Additional
paid-in capital
|
|
|
9,627,781
|
|
Accumulated
deficit
|
|
|
(9,243,040
|
)
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
746,915
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' equity
|
|
$
|
3,613,312
|
|
|
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, 2007 and
2006
|
(Unaudited)
|
|
|
|
For
the Three Months
Ended
Sep 30,
|
|
For
the Nine Months
Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTRACT
REVENUES
|
|
$
|
1,414,269
|
|
$
|
1,996,131
|
|
$
|
7,199,885
|
|
$
|
5,993,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
1,448,830
|
|
|
1,627,231
|
|
|
5,338,205
|
|
|
4,414,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
(34,561
|
)
|
|
368,900
|
|
|
1,861,680
|
|
|
1,578,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
and other compensation
|
|
|
160,555
|
|
|
104,464
|
|
|
802,873
|
|
|
432,422
|
|
Salaries
and related
|
|
|
85,368
|
|
|
86,826
|
|
|
312,338
|
|
|
212,948
|
|
Selling,
general and administrative
|
|
|
177,306
|
|
|
196,271
|
|
|
545,677
|
|
|
657,463
|
|
TOTAL
OPERATING EXPENSES
|
|
|
423,229
|
|
|
387,561
|
|
|
1,660,888
|
|
|
1,302,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
(457,790
|
)
|
|
(18,661
|
)
|
|
200,792
|
|
|
276,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
(INCOME) EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on forgivenes of debt
|
|
|
62,012
|
|
|
(6,697
|
)
|
|
55,053
|
|
|
7,204
|
|
Derivative
liability
|
|
|
-
|
|
|
834,285
|
|
|
-
|
|
|
869,047
|
|
Liquidated
damages
|
|
|
(55,417
|
)
|
|
(420,000
|
)
|
|
(55,417
|
)
|
|
(582,500
|
)
|
Interest,
including debt discount amortization
|
|
|
(475,188
|
)
|
|
(514,302
|
)
|
|
(1,662,702
|
)
|
|
(1,560,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER EXPENSES
|
|
|
(468,593
|
)
|
|
(106,714
|
)
|
|
(1,663,066
|
)
|
|
(1,266,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE PROVISION FOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
(926,383
|
)
|
|
(125,375
|
)
|
|
(1,462,274
|
)
|
|
(990,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(926,383
|
)
|
$
|
(125,375
|
)
|
$
|
(1,462,274
|
)
|
$
|
(990,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS APPLICABLE TO COMMON STOCKHOLDERS
|
|
$
|
(899,033
|
)
|
$
|
(125,375
|
)
|
$
|
(1,434,924
|
)
|
$
|
(745,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss applicable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
common share
|
|
$
|
(0.07
|
)
|
$
|
(0.01
|
)
|
$
|
(0.11
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net loss applicable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
common share
|
|
$
|
(0.07
|
)
|
$
|
(0.01
|
)
|
$
|
(0.11
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
13,440,580
|
|
|
11,435,487
|
|
|
12,698,246
|
|
|
11,176,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
13,440,580
|
|
|
11,435,487
|
|
|
12,698,246
|
|
|
11,176,819
|
|
See
accompanying notes to the condensed consolidated financial statements.
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For
the Nine Months Ended September 2007 and 2006
|
(Unaudited)
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,462,274
|
)
|
$
|
(990,962
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
95,659
|
|
|
111,737
|
|
Net
gain on forgiveness of debt
|
|
|
55,053
|
|
|
(7,204
|
)
|
Amortization
of deferred financing costs
|
|
|
268,722
|
|
|
254,545
|
|
Amortization
of debt discounts
|
|
|
1,100,380
|
|
|
1,020,628
|
|
Amortization
of deferred consulting fees, deffered employee stock option expense,
|
|
|
|
|
|
|
|
estmated
fair market value of common stock issued for consulting services
|
|
|
|
|
|
|
|
and
related change in fair value
|
|
|
696,116
|
|
|
244,909
|
|
Derivative
liability expense (credit)
|
|
|
-
|
|
|
(869,047
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Contracts
receivable
|
|
|
(365,832
|
)
|
|
(452,895
|
)
|
Inventories
|
|
|
(369,683
|
)
|
|
(656,757
|
)
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
555,473
|
|
|
(113,780
|
)
|
Prepaid
expenses and other current assets
|
|
|
(1,697
|
)
|
|
(31,445
|
)
|
Notes
receivable from stockholders
|
|
|
(28,000
|
)
|
|
-
|
|
Accounts
payable and accrued liabilities
|
|
|
100,859
|
|
|
154,362
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
(168,453
|
)
|
|
(254,621
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
476,323
|
|
|
(1,590,530
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(32,225
|
)
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(32,225
|
)
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
123,898
|
|
|
(566,310
|
)
|
Bank
overdraft
|
|
|
21,733
|
|
|
(27,649
|
)
|
Proceeds
of issuance of convertible notes payable
|
|
|
-
|
|
|
3,800,000
|
|
Principal
payments on notes payable and capital leases
|
|
|
(624,500
|
)
|
|
(1,112,667
|
)
|
Deferred
financing costs
|
|
|
-
|
|
|
(422,500
|
)
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(478,869
|
)
|
|
1,670,874
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(34,771
|
)
|
|
60,344
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
53,318
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
18,547
|
|
$
|
60,344
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
cumulative dividends on preferred stock
|
|
$
|
42,400
|
|
$
|
42,400
|
|
|
|
|
|
|
|
|
|
Reversal
of accrued dividends older than four years on preferred
stock
|
|
$
|
(69,750
|
)
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable and interest to common stock
|
|
$
|
424,317
|
|
$
|
170,250
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued for deferred financing costs
|
|
$
|
-
|
|
$
|
641,790
|
|
|
|
|
|
|
|
|
|
Debt
discount on convertible notes payable
|
|
$
|
1,427,397
|
|
$
|
3,823,400
|
|
|
|
|
|
|
|
|
|
Debt
discount on notes payable for note extension
|
|
$
|
-
|
|
$
|
18,900
|
|
|
|
|
|
|
|
|
|
Waived
cumulative dividends on preferred stock
|
|
$
|
-
|
|
$
|
287,875
|
|
|
|
|
|
|
|
|
|
Conversion
of Series C preferred stock to common stock
|
|
$
|
1,500
|
|
$
|
2,000
|
|
See
accompanying notes to the condensed consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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
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, 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 September 30,
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 and nine months ended September 30,
2007
are not necessarily indicative of the results for the full year ending December
31, 2007.
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 an accumulated deficit of
approximately $9,200,000. This factor, among others (See Note 3), 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
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.
As of
September 30, 2007, the company’s inventory was determined to be approximately
$1,490,000 net, based on approximately $204,000 cost of labor, $913,000 cost
of
materials, $117,000 cost of subcontracted services, $542,000 overhead cost,
offset by a $286,000 reserve for estimated markdowns on inventory
costs.
Revenue
Recognition
The
Company's revenues consist of contracts with customers. 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 Statements of Position 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts.
The
amount of revenue recognized at the financial 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 condensed 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." 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 September 30, 2007, the Company estimated
the
markdowns, price concessions and warranty costs and concluded amounts 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 3,303,000 shares at September 30,
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
September 30, 2007.
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.
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.
The
options will vest and become exercisable on December 1, 2007. At September
30,
2007, the Company had 1,850,000 options available for future issuance under
their equity compensation plans. $86,400 and $0 of share-based compensation
expense was recognized in the accompanying condensed consolidated financial
statements for the three month periods ended September 30, 2007 and 2006,
respectively. $259,200 and $0 of share-based compensation expense was recognized
in the accompanying condensed consolidated financial statements for the nine
month periods ended September 30, 2007 and 2006, respectively.
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 September 30, 2007 is
recognized in the period the forfeiture estimate is changed.
At
September 30, 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 September
30, 2007 was not applicable.
Options
outstanding that have vested and are expected to vest as of September 30, 2007
are as follows:
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
in Years
|
|
Aggregate
Intrinsic
Value
(1)
|
|
Vested
|
|
|
1,150,000
|
|
$
|
0.25
|
|
|
0.31
|
|
$
|
126,500
|
|
Expected
to vest
|
|
|
2,000,000
|
|
$
|
0.20
|
|
|
2.62
|
|
$
|
320,000
|
|
Total
|
|
|
3,150,000
|
|
|
|
|
|
|
|
$
|
446,500
|
|
(1)These
amounts represent the difference between $0.36, the closing market
price
of the Company's common stock on September 30, 2007 as quoted on
the
Over-the-Counter Bulletin Board under the symbol "NCNC.OB" for all
in-the-money options outstanding, and the exercise
price.
|
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
|
|
$
|
0.22
|
|
$
|
--
|
|
Grants
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Exercises
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Cancellations
|
|
|
100,000
|
|
|
100,000
|
|
|
1.10
|
|
|
--
|
|
September
30, 2007
|
|
|
1,850,000
|
|
|
3,150,000
|
|
$
|
0.22
|
|
$
|
259,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
|
|
|
|
1,150,000
|
|
$
|
0.25
|
|
$
|
126,500
|
|
(1)
represents the added value as difference between the closing market price of
the
Company's common stock at the end of the reporting period (as of December 31,
2006 and September 30, 2007, the market price of the Company's common stock
was
$0.21 and $0.36, respectively), and the exercise price.
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 and nine month periods ended September 30, 2007, the Company did not
grant
any options or warrants.
The
following is a status of the warrants outstanding at September 30, 2007 and
the
changes during the nine months ended September 30, 2007:
|
|
|
|
Weighted
|
|
|
|
Warrants
|
|
Average
Price
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2006
|
|
|
6,403,728
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Cancelled/Terminated
|
|
|
(25,000
|
)
|
|
(0.65
|
)
|
|
|
|
|
|
|
|
|
Total
Outstanding, September 30, 2007
|
|
|
6,378,728
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
Exercisable,
September 30, 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 September 30, 2007 and 2006, the Company amortized
approximately $90,000 and $84,000, respectively, to interest expense. During
the
nine months ended September 30, 2007 and 2006, the Company amortized
approximately $269,000 and $255,000, respectively, to interest expense. At
September 30, 2007, the unamortized portion of deferred financing costs for
the
convertible note payable is approximately $507,000.
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 recorded in the condensed consolidated financial statements
resulted in a debt discount from the face amount of the notes. Such discounts
are amortized to interest expense over the term of the notes (See Debt Discount
Note).
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 criterion 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 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 approximately $2,955,000, $2,155,000,
$1,321,000 and $695,000 at the quarter ended March 31, 2006, September 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. The December 19, 2006 Amended Registration Rights Agreement was Amended
on May 1, 2007, July 18, 2007 and October 18, 2007 (See details on Registration
Rights Obligation Section in the Management Discussion and Analysis
section).
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 September 30, 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
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (“SFAS
157”). SFAS 157 provides guidance for using fair value to measure assets and
liabilities. It also responds to investors’ requests for expanded information
about the extent to which companies’ measure assets and liabilities at fair
value, the information used to measure fair value, and the effect of fair value
measurements on earnings. SFAS 157 applies whenever other standards require
(or
permit) assets or liabilities to be measured at fair value, and does not expand
the use of fair value in any new circumstances. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007.
We are currently evaluating the effect that the adoption of SFAS 157 will have
on our consolidated results of operations and financial condition and are not
yet in a position to determine such effects.
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 statement 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 September 30, 2007 which include completed contracts not
completely billed represent the following (approximated amounts):
Cumulative
costs to date
|
|
$
|
6,572,000
|
|
Cumulative
gross profit to date
|
|
|
5,480,000
|
|
|
|
|
|
|
Cumulative
revenue earned
|
|
|
12,052,000
|
|
|
|
|
|
|
Less
progress billings to date
|
|
|
(11,731,000
|
)
|
|
|
|
|
|
Net
under billings
|
|
$
|
321,000
|
|
The
following is included in the accompanying condensed consolidated balance sheet
under these captions as of September 30, 2007 (approximated amounts):
Costs
and estimated earnings in excess of billings
|
|
|
|
on
uncompleted contracts
|
|
$
|
605,000
|
|
|
|
|
|
|
Billings
in excess of costs and estimated earnings
|
|
|
|
|
on
uncompleted contracts
|
|
|
(284,000
|
)
|
|
|
|
|
|
Net
under billings
|
|
$
|
321,000
|
|
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 30, 2006, the balance of the note was $84,000.
During
the three months ended September 30, 2006, the Company made cash payments of
approximately $117,000 to reduce the principal balance on one of its secured
convertible notes payable. As of September 30, 2006, the balance of the note
was
$3,383,000.
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 30, 2006, the principal balance
on
that note was $150,000.
During
the three months ended September 30, 2006, the Company made cash payments of
$81,000 to pay off two of its outstanding secured notes payable.
Also,
during the three months ended September 30, 2007, the Company made cash payments
of approximately $7,500 to capital lease payable of which $4,000 were recorded
as payments on the principal balance.
For
the
three months ended September 30, 2007, the Company is in default on payments
on
its secured convertible note payable The Company is currently renegotiating
the
term of the note and intend to pay the interest due shortly. As of September
30,
2007, the balance of the note was $2,217,000.
During
the
nine months ended September 30, 2007, the Company made cash payments of $48,000
to pay in full one of its outstanding secured notes payable
During
the nine months ended September 30, 2007, the Company made cash payments of
$100,000 to reduce the principal balance on one of its outstanding secured
convertible notes payable.
During
the nine months ended September 30, 2007, the Company made cash payments of
$466,667 to reduce the principal balance on one of its outstanding secured
convertible notes payable. Also, the Company’ Board of Directors approved
conversion of $350,000 principal and approximately $74,317 of interest into
675,000 shares of the Company’s common stock. As of September 30, 2007, the
principal balance is approximately $2,217,000 which is presented net of debt
discounts totaling approximately $789,000.
During
the nine months ended September 30, 2007, the Company made cash payments of
approximately $22,500 on the capital lease payable of which $9,833 were recorded
as payments on the principal balance. As of September 30, 2007, the principal
balance on that lease was $69,000.
Debt
Discount
During
the three months ended September 30, 2007 and 2006, the Company amortized
approximately $252,000 related to a convertible note payable to CAMOFI Master
LDC ("CAMOFI") and $313,000, respectively, of debt discounts to interest
expense.
During
the nine months ended September 30, 2007 and 2006, the Company amortized
approximately $1,100,000 and $1,021,000, respectively, of debt discounts to
interest expense. For the nine months ended September 30, 2006, $700,000 was
related to a convertible note payable to CAMOFI and $300,000 was related to
a
convertible note payable to Motivated Minds, LLC (“Motivated
Minds”).
4.
EQUITY TRANSACTIONS
Equity
Compensation
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 first
quarter of 2007 in the accompanying consolidated statements of
operations.
In
May
2007, the Company issued 100,000 shares of common stock valued at $70,000 (based
on the market price of the shares) to a third party for public investor
relations services under one year contract. The common stock was recorded at
the
estimated fair value of the common stock on the date of the transaction as
a
deferred charge and is amortized to operating expense over the life of the
agreement.
In
June
2007, the Company issued 300,000 shares of common stock valued at $210,000
(based on the market price of the shares) to a third party for internet public
investor relations services under a three year contract. The common stock was
recorded at the estimated fair value of the common stock on the date of the
transaction as a deferred charge and is amortized to operating expense over
the
life of the agreement.
In
June
2007, the Company issued 15,000 shares of common stock valued at $10,500 (based
on the market price of the shares) to a third party for public investor
relations services under a 90 days contract. The common stock was recorded
at
the estimated fair value of the common stock on the date of the transaction
as a
deferred charge and is amortized to operating expense over the life of the
agreement.
In
June
2007, the Company issued 75,000 shares of common stock valued at $52,500 (based
on the market price of the shares) to a third party for corporate consulting
and
market services under a 6 months contract. The common stock was recorded at
the
estimated fair value of the common stock on the date of the transaction as
a
deferred charge and is amortized to operating expense over the life of the
agreement.
All
the
above four contracts were recorded as public company expense in the second
quarter of 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 September 30, 2007, the Company recorded net decreases to the fair values
of such equity based compensation arrangements of approximately $37,500. During
the nine months ended September 30, 2007, the Company recorded net increases
to
the fair values of such equity based compensation arrangements with third
parties totaling $7,000.
During
the three and nine months ended September 30, 2007 the Company amortized
approximately $181,000 and $259,000, respectively, of consulting expense related
to deferred consulting fees on such equity based compensation arrangements.
As
of September 30, 2007, the unamortized portion of consulting fees on such equity
based compensation arrangements approximate $227,000.
Dividends
on preferred stock
The
preferred shares Series C and preferred shares Series D shares have a mandatory
cumulative dividend of $1.25 per share, which is payable on a semi-annual basis
in September and December each year to holders of record on November 30 and
May
31, does not have any voting rights and has liquidation
preferences.
Accrued
dividends on the Company’s preferred common stock older then four years are
beyond the California Statute of Limitations and the dividends are no longer
required to be paid. Therefore, the Company decreased dividends payable by
$69,750 in September 2007 for those dividends older than four years that the
Company does not intend to pay.
At
September 30, 2007, the Company had a total of 26,680 preferred shares Series
C
and 11,640 preferred shares Series D issued and outstanding. On June 30, 2007
the Company recorded an accrual of $42,400 dividends for preferred shares
shareholders who did not waive their right to receive dividends. As of September
30, 2007, the Company’s accumulated dividends payable has a balance of
$335,450.
Conversion
of debt into shares of Company’s common stock
In
June
2007, the Company’s Board of Directors approved the issuance of 675,000 shares
of common stock as a conversion of principal and interest due on the 12% Senior
Secured Convertible debt. The 675,000 shares of common stock were recorded
at
par value, and the difference between the par value (approximated $67,000)
of
the stock issued upon conversion and the amount converted (approximated
$425,000) amounted $357,000 which was recorded as additional paid in
capital.
The
debt
discount related to the convertible note was reduced pro-rata based on the
debt
reduction and approximately $278,000 was charged to interest expense
.
5.
SUBSEQUENT EVENTS
On
October 18, 2007 the Company filed an amended registration statement on Form
SB-2 with the Securities and Exchange Commission to answer to SEC comments
on
the registration statement filed on July 19, 2007.
On
November 9, 2007 the Company filed an amended registration statement on Form
SB-2 with the Securities and Exchange Commission to answer to SEC comments
on
the amended registration statement filed on October 18, 2007.
On
November 13, 2007, the Securities and Exchange Commission declared effective
the
registration statement filed on October 18, 2007.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Company caused
this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:
November 14, 2007
|
NEW
CENTURY COMPANIES, INC.
|
|
|
|
/s/
DAVID DUQUETTE
|
|
|
|
Name:
David Duquette
|
|
Title:
Chairman, President and
Director
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.
Date:
November 14, 2007
|
/s/
DAVID DUQUETTE
|
|
|
|
Name:
David Duquette
|
|
Title:
Chairman, President and Director
|
|
|
|
|
Date:
November 14, 2007
|
/s/
JOSEF CZIKMANTORI
|
|
|
|
Name:
Josef Czikmantori
|
|
Title:
Secretary and Director
|