Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON
DC 20549
FORM
10-KSB
(MARK
ONE)
x
ANNUAL REPORT UNDER
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934.
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
OR
o
TRANSITION REPORT UNDER
SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT
OF 1934.
FOR
THE TRANSITION PERIOD FROM __________ TO____________
COMMISSION
FILE NUMBER 000-09459
(NAME
OF
SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE
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0610345787
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(STATE
OR OTHER JURISDICTION OF INCORPORATION)
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(I.R.S.
EMPLOYER
IDENTIFICATION
NO.)
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9831
ROMANDEL AVE.
SANTA
FE SPRINGS, CA
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90670
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(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)
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(ZIP
CODE)
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(562)
906-8455
(ISSUER'S
TELEPHONE NUMBER, INCLUDING AREA CODE)
TITLE
OF EACH CLASS
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NAME
OF EACH EXCHANGE
ON
WHICH REGISTERED
|
SECURITIES
REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON
STOCK, PAR VALUE $0.10
(TITLE
OF
CLASS)
Check
whether the issuer is required to file reports pursuant to Section 13 or 15(d)
of the Exchange Act.
Check
whether the issuer: (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Company was required to file such reports), and (2) has been subject
to
such filing requirements for past 90 days. Yes x No o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained
to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-SKB or any amendment
to
this Form 10-KSB. x
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
issuer's revenue for its most recent fiscal year was $10,048,309.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold, on the average bid and ask price of such common equity on May 12, 2008
was
$0.14. As of May 12, 2008, there were 14,119,656 shares of common stock issued
and outstanding.
NEW
CENTURY COMPANIES, INC.
FORM
10-KSB
INDEX
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PAGE
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PART
I
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Item
1.
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Description
of Business
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4
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Item
1A.
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Risk
Factors
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7
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Item
2.
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Description
of Property
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8
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Item
3.
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Legal
Proceedings
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9
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Item
4.
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Submission
of Matters To a Vote of Security Holders
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9
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PART
II
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Item
5.
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Market
for Company's Common Equity, Related Stockholder Matters, and Small
Business Issuer Purchases of Equity Securities
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9
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Item
6.
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Management's
Discussion and Analysis or Plan of Operation
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15
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Item
7.
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Financial
Statements and Notes to the Consolidated Financial
Statements
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19
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Item
8.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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19
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Item
8A
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Disclosures
Controls and Procedures
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19
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PART
III
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Item
9.
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Directors,
Executive Officers, Promoters, Control Persons, Corporate Governance;
Compliance with Section 16(a) of The Exchange Act
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23
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Item
10.
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Executive
Compensation
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25
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Item
11.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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27
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Item
12.
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Certain
Relationships and Related Transactions
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27
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Item
13.
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Exhibits
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28
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Item
14.
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Principal
Accountant Fees and Services
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29
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Signatures
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30
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Report
of Independent Registered Public Accounting Firm
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F-1
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Financial
Statements
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F-2
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Notes
to the Consolidated Financial Statements
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F-6
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This
Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934. These statements relate to future events or
the
Company's future financial performance. The Company has attempted to identify
forward-looking statements by terminology including "anticipates," "believes,"
"expects," "can," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predict," "should" or "will" or the negative of these
terms or other comparable terminology.
Although
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. The Company expectations are as of
the
date this Form 10-KSB is filed, and the Company does not intend to update any
of
the forward-looking statements after the date this Annual Report on Form 10-KSB
is filed to confirm these statements to actual results, unless required by
law.
OVERVIEW
Corporate
History and Operations
The
common stock of New Century Companies, Inc. ("New Century" or the "Company")
is
quoted on the OTC Bulletin Board under the symbol "NCNC.OB". Prior to May 25,
2001, the Company was engaged in the business of marketing services to other
companies wanting to reach the Hispanic market. However, due to difficulty
in
raising additional working capital to execute the business plan, the Company
ceased its operations and completed a reverse merger.
On
May
25, 2001, the Company entered into a plan of Reorganization and Merger with
New
Century Remanufacturing, Inc., (“NCR”). Pursuant to the merger, all of the
outstanding shares of NCR were exchanged for shares of the Company on a 1 to
833.33 basis. The Company issued a total of 4,195,942 shares of common stock.
Immediately after the merger, all then existing officers and directors of the
Company resigned and the management of NCR was elected and appointed to such
positions; thereby effecting a change of control. Although NCR became a
wholly-owned subsidiary of the Company following the transaction, because the
transaction resulted in a change of control, the transaction was recorded as
a
"reverse merger" whereby NCR was considered to be the accounting acquirer of
the
Company. After the reverse merger the Company changed its name to New Century
Companies, Inc. The results of operations and the related financial statements
are the results of operations for NCR.
Since
the
merger, the Company has been engaged in acquiring, re-manufacturing and selling
pre-owned Computer Numerically Controlled ("CNC") machine tools to manufacturing
customers. The Company provides rebuilt, retrofit and remanufacturing services
for numerous brands of machine tools. The remanufacturing of a machine tool,
typically consisting of replacing all components, realigning the machine, adding
updated CNC capability and electrical and mechanical enhancements, generally
takes two to four months to complete. Once completed, a remanufactured machine
is a "like new," state-of-the-art machine with a price ranging from $275,000
to
$1,000,000, which is approximately 40%-50% of the price of a new machine. The
Company also manufactures original equipment CNC large turning lathes and
attachments under the trade name Century Turn.
CNC
machines use commands from onboard computers to control the movements of cutting
tools and rotation speeds of the parts being produced. Computer controls enable
operators to program operations such as part rotation, tooling selection and
tooling movement for specific parts and then store the programs in memory for
future use. The machines are able to produce parts while left unattended.
Because of this ability, as well as superior speed of operation, a CNC machine
is able to produce the same amount of work as several manually controlled
machines, as well as reduce the number of operators required; generating higher
profits with less re-work and scrap. Since the introduction of CNC tooling
machines, continual advances in computer control technology have allowed for
easier programming and additional machine capabilities.
A
vertical turning machine permits the production of larger, heavier and more
oddly shaped parts on a machine, which uses less floor space when compared
to
the traditional horizontal turning machine because the spindle and cam are
aligned on a vertical plane, with the spindle on the bottom.
The
primary industry segments in which NCR machines are utilized to make component
parts are in aerospace, power generation turbines, military, component parts
for
the energy sector for natural gas and oil exploration and medical fields. The
Company sells its products to customers in the United States, Canada and Mexico.
Over
the
last four years, the Company has designed and developed a large horizontal
CNC
turning lathe with productivity features new to the metalworking industry.
The
Company has applied for a patent for the Century Turn Lathe. The Company
believes that a potential market for the Century Turn Lathe, in addition to
the
markets mentioned above, is aircraft landing gear.
INDUSTRY
OVERVIEW
We
provide our manufactured and remanufactured machines as part of the machine
tool
industry. The machine tool industry worldwide is approximately a 30 billion
dollar business annually. The industry is sensitive to market conditions and
generally trends downward prior to poor economic conditions, and improves prior
to an improvement in economic conditions.
Our
machines are utilized in a wide variety of industry segments as follows:
aerospace, energy, valves, fittings, oil and gas, machinery and equipment,
and
transportation. With the recent downturn in the aerospace industry, we have
seen
an increase in orders from new industries such as defense and medical
industries.
CUSTOMERS
Each
year
we have approximately 50% new customers and 50% repeat customers.
SUPPLIERS
Our
three
largest suppliers are GE Fanuc Automation, Bearings and Drives and Sandvik
Coromant.
MARKETING
We
market
our CNC turning lathes primarily through direct sales and independent
representatives throughout the United States. We also market our lathes through
advertising in industrial trade publications. We have recently engaged the
services of three independent sales representatives who have had a key impact
on
the amount of direct sales.
We
market
our CNC vertical boring mills by advertising in regional and national trade
publications and distribute product literature explaining the differences
between used and remanufactured machinery.
BUSINESS
STRATEGY AND MARKET DEVELOPMENT
Our
business strategy is to capitalize on the opportunities for growth in our core
businesses by increasing our penetration of existing markets and expanding
into
new markets by introducing new products and services.
SEASONALITY
Our
business is subject to certain seasonal fluctuations in sales, with a pattern
of
net sales being lower in the second fiscal quarter, due to plant closings in
the
summer months and vacations. The market for machine tools is also sensitive
to
economic conditions, production capacity utilization and the general level
of
business confidence.
COMPETITION
The
market for remanufacturing services for the machine tools is competitive; with
competition from numerous independent rebuild suppliers with various sales
and
resource levels. We believe that we have a competitive advantage because we
employ skilled personnel who have been trained for and have experience with
these products. Principal competitive factors for our products and services
are
proprietary technology, customer service, technical support, delivery and price.
SOURCES
AND AVAILABILITY OF RAW MATERIALS
Our
products are manufactured from various raw materials, including cast iron,
sheet
metal, bar steel and bearings. Although our operations are highly integrated,
we
purchase a number of components from outside suppliers, including the computer
and electronic components for our CNC turning lathes. There are multiple
suppliers for virtually all of our raw material and components and we have
not
experienced a supply interruption.
RESEARCH
AND DEVELOPMENT
Our
ongoing research and development program involves creating new products and
modifying existing products to meet market demands and redesigning existing
products to reduce the cost of manufacturing. The research and development
department is staffed with experienced design engineers. In the last year we
did
not incur any cost of research and development.
PATENTS
AND TRADEMARKS
The
Company has applied for patents and trademarks relating to its manufactured
products. However, the Company's business generally is not dependent upon the
protection of any patent, patent application or patent license agreement, or
group thereof, and would not be materially affected by the expiration thereof.
EMPLOYEES
At
December 31, 2007, we had 40 full-time employees. The Company believes its
relationships with its employees are good. The Company's employees are not
represented by a collective bargaining organization and the Company has not
experienced a work stoppage.
ENVIRONMENTAL
MATTERS
The
industry in which we compete is subject to environmental laws and regulations
concerning emissions to the air, discharges to waterways, and the generation,
handling, storage, transportation, treatment and disposal of waste materials.
These laws and regulations are constantly evolving and we cannot predict
accurately the effect they will have on our business in the future. It is our
policy to comply with all applicable environmental, health and safety laws
and
regulations. In many instances, the regulations have not been finalized. Even
where regulations have been adopted, they are subject to varying and conflicting
interpretations and implementation. In some cases, compliance can only be
achieved by capital expenditures. We cannot accurately predict what capital
expenditures, if any, may be required. We believe that our operations are in
compliance with all applicable laws and regulations relating to environmental
matters.
AVAILABLE
INFORMATION
The
Company files annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
current reports on Form 8-K and proxy and information statements and amendments
to reports files or furnished pursuant to Sections 13(a) and 15(d) of the
Security Exchange Act of 1934, as amended. The public may read and copy this
materials at the SEC`s Public Reference Room at 450 Fifth St. NW, Washington,
DC
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
a
website (HTTP://WWW.SEC.GOV) that contains reports, proxy and information
statements and other information regarding the Company and other companies
that
file materials with the SEC electronically.
Operating
Results Fluctuate
The
Company’s results of operations for any quarter or year are not necessarily
indicative of results to be expected in future periods. New Century’s future
operating results may be affected by various trends and factors that must be
managed in order to achieve favorable operating results. The inability to
forecast these trends and factors could have a material adverse effect on its
business, results of operations, and financial condition. The Company’s
operating results have historically been and are expected to continue to be
subject to quarterly and yearly fluctuations as a result of a number of factors.
These factors include:
n |
adverse
changes in the conditions in the specific markets for its products;
|
n |
visibility
to, and the actual size and timing of, capital expenditures by its
customers;
|
n |
inventory
practices, including the timing of deployment, of its
customers;
|
n |
adverse
changes in the public and private equity and debt markets and the
ability
of its customers and suppliers to obtain financing or to fund capital
expenditures;
|
n |
adverse
changes in the credit ratings of its customers and
suppliers;
|
n |
a
general downturn in the overall
economy;
|
n |
a
decline in government defense funding that lowers the demand for
defense
equipment and retrofitting;
|
n |
competitive
pricing and availability of competitive products;
and
|
n |
adverse
changes in the ability of the company to obtain financing or to fund
capital expenditures, mergers and acquisitions or growth.
|
As
a
consequence, operating results for a particular period are difficult to predict.
Any of the above factors could have a material adverse effect on New Century’s
business, results of operations, and financial condition.
Reliance
on External Financing to Meet Cash Requirements
The
Company will continue to rely upon external financing sources to meet the cash
requirement of its ongoing operations. New Century is currently seeking
additional capital in the form of equity or debt, or a combination thereof.
However, there is no guarantee that it will raise sufficient capital to execute
its business plan. To the extent that the Company is unable to raise sufficient
capital, its business plan will require substantial modification and its
operations curtailed. These conditions raise substantial doubt about New
Century’s ability to continue as a going concern. The Company’s continuation as
a going concern is dependent upon its ability to ultimately attain profitable
operations, generate sufficient cash flow to meet its obligations, and obtain
additional financing as may be required.
Volatile
Share Price
The
Company’s Common Stock has experienced, and may continue to experience,
substantial price volatility, particularly as a result of variations between
its
actual or anticipated financial results and the published expectations of
analysts and as a result of announcements by its competitors and itself. In
addition, the stock market has experienced extreme price fluctuations that
have
affected the market price of many companies and that have often been unrelated
to the operating performance of these companies. A major decline in the capital
markets generally, or in the market price of New Century’s securities may
negatively impact its ability to make future strategic acquisitions, raise
capital, issue debt, or retain employees. These factors, as well as general
economic and political conditions, may in turn have a material adverse effect
the market price of the Company’s Common Stock.
Seasonality
The
Company’s business is subject to certain seasonal fluctuations in sales, with a
pattern of net sales being lower in the second fiscal quarter, due to plant
closings in the summer months and vacations. The market for machine tools is
also sensitive to economic conditions, production capacity utilization and
the
general level of business confidence.
Competition
The
market for remanufacturing services for the machine tools is competitive with
competition from numerous independent rebuild suppliers with various sales
and
resource levels. The Company believes it possesses a competitive advantage
in
that it employs skilled personnel who have been trained for and have experience
with these products. Principal competitive factors for the Company’s products
and services are proprietary technology, customer service, technical support,
delivery, and price.
Product
Liability And Warranty Claims
We
may be
exposed to product liability and warranty claims in the event that the use
of
our products results, or is alleged to result, in bodily injury and/or property
damage or our products actually or allegedly fail to perform as expected. While
we maintain insurance coverage with respect to certain product liability claims,
we may not be able to obtain such insurance on acceptable terms in the future,
if at all, and any such insurance may not provide adequate coverage against
product liability claims. In addition, product liability claims can be expensive
to defend and can divert the attention of management and other personnel for
significant periods of time, regardless of the ultimate outcome. An unsuccessful
defense of a product liability claim could have an adverse affect on our
business, results of operations and financial condition and cash flows. Even
if
we are successful in defending against a claim relating to our products, claims
of this nature could cause our customers to lose confidence in our products
and
our company. Warranty claims are not covered by insurance, and we may incur
significant warranty costs in the future for which we would not be reimbursed.
Key
Personnel
Our
ability to operate our businesses and implement our strategies depends, in
part,
on the efforts of our executive officers and other key employees, particularly
Messrs Duquette and Czikmantory. In addition, our future success will depend
on,
among other factors, our ability to attract and retain qualified personnel,
particularly research professionals, technical sales professionals and
engineers. The loss of the services of any key employee or the failure to
attract or retain other qualified personnel could have a material adverse effect
on our business or business prospects.
ITEM
2. DESCRIPTION OF PROPERTY.
We
lease
our headquarters in Santa Fe Springs, California, which expire on February
28,
2009, and conduct our operations at such facilities. We believe that our
facilities are in good condition and provide adequate capacity to meet our
needs
for the foreseeable future.
The
following table sets forth certain information relating to the Company's
principal facilities:
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PRINCIPAL
USES
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APPROX
SQ. FT.
|
|
9831
Romandel Ave.
Santa
Fe Springs, CA 90670
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Manufacturing
|
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38,000
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ITEM
3. LEGAL PROCEEDINGS.
The
Company may be involved from time to time in various claims, lawsuits, disputes
with third parties, actions involving allegations of discrimination or breach
of
contract actions incidental in the normal course of business operations. The
Company is currently not involved in any such litigation or any pending legal
proceedings that management believes could have a material adverse effect on
the
Company's financial position or results of operations.
There
were no matters submitted to security holder for the quarter ended December
31,
2007.
PART
II
Our
common stock trades on the Over-The-Counter Bulletin Board under the symbol
"NCNC.OB". The following table sets forth the high and low bid prices for the
shares of common stock as reported on the Over-The-Counter Bulletin Board for
each quarterly period of the last two fiscal years. The bid prices listed below
represent prices, adjusted for stock splits, between dealers without adjustments
for retail markups, breakdowns or commissions and may not represent actual
transactions.
For
Year Ended 2007 (Quarter Ended)
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HIGH
|
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LOW
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|
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December
31
|
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$
|
0.43
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0.15
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|
September
30
|
|
|
0.75
|
|
|
0.36
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|
June
30
|
|
|
0.82
|
|
|
0.34
|
|
March
31
|
|
|
0.48
|
|
|
0.20
|
|
For
Year Ended 2006 (Quarter Ended)
|
|
HIGH
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LOW
|
|
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|
|
|
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December
31
|
|
$
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0.40
|
|
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0.16
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September
30
|
|
|
0.66
|
|
|
0.38
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June
30
|
|
|
1.21
|
|
|
0.45
|
|
March
31
|
|
|
0.87
|
|
|
0.53
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|
We
have
not declared any cash dividends on our common stock since inception. Declaration
of dividends with respect to the common stock is at the discretion of the Board
of Directors. Any determination to pay dividends will depend upon the financial
condition, capital requirements, results of operations and other factors deemed
relevant by the Board of Directors.
At
December 31, 2007 we had approximately 165 shareholders of our common stock.
This figure does not include beneficial holders or common stockholder's nominee
co-trust name, as we cannot accurately estimate the number of these beneficial
holders.
The
transfer agent and registrar for our common stock as of December 31, 2007 was
Computershare AKA U.S. Stock Transfer, Los Angeles, California, which was
changed to Signature Stock Transfer, Plano, Texas on March 18, 2008.
Holders
of Our Common Stock
As
of
December 31, 2007, there were approximately 1,000 holders of record of our
common stock.
Dividends
We
have never declared or paid any cash dividends on
our common stock. We anticipate that any earnings will be retained for
development and expansion of our business and do not anticipate paying any
cash
dividends in the near future. Our Board of Directors has sole discretion to
pay
cash dividends based on our financial condition, results of operations, capital
requirements, contractual obligations, and other relevant factors.
PENNY
STOCK
Until
the
Company's shares qualify for inclusion in the NASDAQ system, the public trading,
if any, of the Company's common stock will be on the OTC Bulletin Board. As
a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the common stock offered. The Company's
common stock is subject to provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock rule." Section 15(g) sets forth certain
requirements for transactions in penny stocks, and Rule 15g-9(d) incorporates
the definition of "penny stock" that is found in Rule 3a51-1 of the Exchange
Act. The SEC generally defines "penny stock" to be any equity security that
has
a market price less than $5.00 per share, subject to certain exceptions. If
the
Company's common stock is deemed to be a penny stock, trading in the shares
will
be subject to additional sales practice requirements on broker-dealers who
sell
penny stock to persons other than established customers and accredited
investors. "Accredited investors" are persons with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their
spouse. For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such security and must
have the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the first transaction, of a risk disclosure
document, prepared by the SEC, relating to the penny stock market. A
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, and current quotations for
the
securities. Finally, monthly statements must be sent disclosing recent price
information for the penny stocks held in an account and information on the
limited market in penny stocks. Consequently, these rules may restrict the
ability of a broker-dealer to trade and/or maintain a market in the Company's
common stock and may affect the ability of the Company's shareholders to sell
their shares.
RECENT
SALES OF UNREGISTERED SECURITIES
PREFERRED
STOCK
In
July
2007, holders of the Company's Preferred C converted 900 shares into 15,000
shares of common stock. There were no other transactions related to preferred
stock.
In
June
2006, holders of the Company's Preferred C converted 1,200 shares into 20,000
shares of common stock. There were no other transactions related to preferred
stock .
COMMON
STOCK
Related
to CAMOFI Secured Convertible Note
On
June
29, 2007, the Company issued 675,000 shares of common stock to CAMOFI as a
conversion of approximately $350,000 of principal and approximately $74,317
of
interest due on CAMOFI’s secured convertible note.
The
conversion price was $0.63 per share.
In
connection with the initial issuance of the CAMOFI
secured convertible note
on
February 28, 2006, the Company issued 250,000 shares of common stock to the
placement agent. The common stock was recorded at the estimated fair value
of
the common stock on the date of the transaction totaling approximately $157,500,
which was recorded as deferred financing cost and is amortized over 3 years,
the
life of the note. During 2006 and 2007, the Company amortized to interest
expense an amount of $43,750 and $52,500, respectively. As of December 31,
2007,
a balance of $61,250 remained to be amortized.
Issuance
of Common Stock For Services
Issuance
Of Stock For Services Valued Based On The
Stock Market Price Of The Shares At The Contract Date
In
December 2007, the Company entered into a three month contract with a third
party for corporate consulting and marketing services valued at $180,000. The
fee was paid as follows: $30,000 in cash, 300,000 shares of the Company’s common
stock valued at $45,000 based on the stock market price of the shares at the
contract date, and 700,000 options valued at $105,000 using the Black-Scholes
option-pricing model to purchase the Company’s common shares. The value of the
common stock and options issued on the date of the transaction were recorded
as
a deferred charge and is amortized to operating expense over the life of the
agreement. At December 31, 2007, the remaining deferred consulting fees under
this contract totaled $125,000.
In
June
2007, the Company entered into a three year contract with a third party for
internet public investor relations services valued at $210,000. The fee was
paid
in the form of 300,000 shares of Company’s common stock and valued based on the
stock market price of the shares at the contract date. The value of the common
stock on the date of the transaction was recorded as a deferred charge and
is
amortized to operating expense over the life of the agreement. At December
31,
2007, the remaining deferred consulting fees under this contract totaled
$169,171.
In
June
2007, the Company entered into a ninety day contract with a third party for
public investor relations services valued at $10,500. The fee was paid in the
form of 15,000 shares of the Company’s common stock and valued based on the
stock market price of the shares at the contract date. The value of the common
stock on the date of the transaction was recorded as a deferred charge and
was
amortized to operating expense over the life of the agreement. The consulting
fees under this contract were amortized to expense during the year.
In
June
2007, the Company entered into a six month contract with a third party for
corporate consulting and marketing services valued at $52,500. The fee was
paid
in the form of 75,000 shares of the Company’s common stock based on the stock
market price of the shares at the contract date. The value of the common stock
on the date of the transaction was recorded as a deferred charge and was
amortized to operating expense over the life of the agreement. The consulting
fees under this contract were amortized to expense during the year.
In
July
2006, the Company issued 100,000 shares of common stock valued at $41,000 (based
on the market price of the shares on the date the services were completed)
to a
third party for corporate finance and investor relations services under one
month contract. The amount was recorded as consulting expense during the year
ended December 31, 2006.
Issuance
Of Stock For Services Valued
in accordance with the EITF 96-18
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. As described in Note 1, in accordance with the EITF 96-18, the value
of this services are not readily determinable and the fair value of the equity
instruments is more reliably measurable. Under this 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 year ended December 31, 2007, the Company recorded
net
decreases to the fair values of such equity based compensation arrangements
of
approximately $12,000. At December 31, 2007, the remaining deferred consulting
fees under this contract totaled $8,250.
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. The fee was recorded as public company
expense in the first quarter of 2007 in the consolidated statements of
operations.
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. The fee was recorded as public
company expense in the first quarter of 2007 in the consolidated statements
of
operations.
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. The fee was recorded as public company
expense in the first quarter of 2007 in the consolidated statements of
operations.
In
December 2006, the Company issued 150,000 shares of common stock valued at
$28,500 (based on the market price of the shares on the date of grant) to a
third party for public relations consulting services. In accordance with EITF
96-18, the Company revalued the transaction at December 31, 2006 and adjusted
the fees to $31,500. The additional $3,000 difference was recorded as deferred
consulting fees and was being amortized over the remaining term of the
contract.
Other
Issuances
On
November 14, 2006, in connection with the Motivated Minds convertible note
dated
February 15, 2006, the Company issued 30,000 restricted shares of common stock
to Motivated Minds for extension of the maturity date of $150,000 of principal
balance of the note until December 16, 2006. The common stock was recorded
at
the estimated fair value of the common stock on the date of the transaction
totaling approximately $6,000, which was expensed immediately as interest
expense.
On
July
25, 2006, in connection with the Motivated Minds convertible note dated February
15, 2006, the Company issued 45,000 restricted shares of common stock to
Motivated Minds for extension of the maturity date of $150,000 of principal
balance of the note until August 16, 2006, and the remaining principal balance
of $150,000 of the note until October 16, 2006. The common stock was recorded
at
the estimated fair value of the common stock on the date of the transaction
totaling approximately $23,400, which was amortized as interest expense over
three months.
On
May
15, 2006, the Company issued 10,227 shares of common stock for conversion of
$6,750 of interest due on Motivated Minds Note. The common stock conversion
price was recorded at $0.66 in accordance with the terms of the convertible
note
agreement.
On
April
25, 2006, the Company issued 9,091 shares of common stock for conversion of
$6,000 of interest due on Motivated Minds Note. The
common stock conversion price was recorded at $0.66 in accordance with the
terms
of the convertible note agreement.
During
March 2006, the Company issued 250,000 shares of restricted common stock and
paid $900,000 in cash to one of its creditors to settle $750,000 outstanding
principal balance and $291,050 accrued interest on two defaulted notes payable.
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.
On
March
7, 2006, in connection with the Motivated Minds convertible
note
dated
February 15, 2006, the Company issued 30,000 restricted shares of common stock
to Motivated Minds for extension of the maturity date of $300,000 of principal
balance of the note until May 15, 2006. The common stock was recorded at the
estimated fair value of the common stock on the date of the transaction totaling
approximately $18,900, which was amortized as interest expense over three
months.
In
connection with the initial issuance of the Motivated Minds convertible
note
on
February 15, 2006, the Company issued 30,000 shares of common stock to the
note
holder. The proceeds of the note were allocated to the common shares using
Relative The Fair Value allocation method in accordance with APB No.14,
resulting indebt discount of approximately $19,200, which amortized over the
life of the Note.
During
the year ended December 31, 2002, the Company received two subscriptions
receivable totaling $375,000 in exchange for 250,000 restricted shares of common
stock. The receivables bear interest at an annual rate of 5%. Principal and
any
unpaid interest on both subscriptions receivable were due on August 22, 2003,
and are in default as of December 31, 2007. The related accrued interest
receivable and interest income are insignificant to the consolidated financial
statements.
During
the year ended December 31, 2001, the Company received a subscription receivable
of $87,500 from a member of the Board of Directors in exchange for shares of
the
Company’s restricted common stock. The subscription receivable bears interest at
an annual rate of 6%. Principal and any unpaid interest were due on October
6,
2001. As of December 31, 2007, the subscription receivable remains unpaid.
The
related accrued interest receivable and interest income are insignificant to
the
consolidated financial statements.
WARRANTS
On
December 19, 2006, the Company entered into an Amended and Restated Registration
Rights Agreement (the “Amendment”) with CAMOFI. Pursuant to the Amendment,
CAMOFI agreed to waive any liquidated damages accrued prior to the date of
the
Amendment. An aggregate of 1,500,000 warrants valued at $300,000 (based on
the
stock trading price on the date of grant in accordance with EITF 96-18) were
issued to the Noteholder as a consideration of the Amendment. The warrants
are
exercisable at a price of $.35 per share and expire on December 19, 2013. (See
Note 6).
In
March
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 under an agreement to write an Executive Informational
Overview and 4 quarterly updates. The Company recorded the fair value of the
common stock totaling $127,500 as deferred consulting fees and amortized such
amount over the twelve month term of the agreement. In accordance with the
EITF
96-18, the Company performed a recalculation of the deferred consulting fees
based on the December 31, 2006 fair value stock price, and adjusted the fees
to
$31,500. The $96,000 difference was recorded as a decrease in deferred
consulting fees.
In
February 2006, the Company issued 454,545 warrants shares of common stock to
the
holder of the note in connection with the issuance of the Motivated Minds
convertible note dated February 15, 2006.
The
Warrants are exercisable at a price of $0.66 per share and expire on February
14, 2011. Also,
the
Company issued an aggregate of 45,454 warrants shares of common stock to the
Placement Agents and their assignees. The warrants are exercisable at a price
of
$.66 per share and expire on February 14, 2011. (See
Note
6).
In
February 2006, the Company issued 3,476,190 warrants shares of common stock
to
the holder of the note in connection with the issuance of the CAMOFI
convertible note dated February 28, 2006.
The
Warrants are exercisable at a price of $0.63 per share and will expire on
February 28, 2011. Also, the Company issued an aggregate of 722,539 warrants
to
the Placement Agent and its assignee. The warrants are exercisable at a price
of
$.63 per share and expire on February 28, 2011. (See Note 6).
STOCK
OPTIONS
Under
the
terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase
an aggregate of 5,000,000 shares of common stock may be issued to key employees,
as defined. The exercise price of any option may not be less than the fair
market value of the shares on the date of grant. No options granted may be
exercisable more than 10 years after the date of grant. The options granted
generally vest evenly over a one-year period, beginning from the date of grant.
Under
the
terms of the Company's non-statutory stock option plan ("NSSO"), options to
purchase an aggregate of 1,350,000 shares of common stock may be issued to
non-employees for services rendered. These options are non-assignable and
non-transferable, are exercisable over a five-year period from the date of
grant, and vest on the date of grant.
During
the year ended December 31, 2007, the Company granted 800,000 options related
to
consulting services.
During
the year ended December 31, 2006, the Company granted 2,000,000 stock options
under the terms of the Company's Incentive Stock Option Plan ("ISOP"). Also,
the
Company granted 6,371,455 warrants, related to financing activities or
consulting services.
The
following is a status of the stock options and warrants outstanding at December
31, 2007 and the changes during the two years then ended:
|
|
Year Ended
December 31,
2007
|
|
Year Ended
December 31,
2006
|
|
|
|
Options and
Warrants
|
|
Weighted
Average Price
|
|
Options and
Warrants
|
|
Weighted
Average
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
|
|
9,653,728
|
|
$
|
0.46
|
|
|
1,468,500
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
800,000
|
|
$
|
0.15
|
|
|
8,371,455
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Terminated
|
|
|
(125,000
|
)
|
|
(1.01
|
)
|
|
(186,227
|
)
|
|
(0.87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable, end of year
|
|
|
10,328,728
|
|
$
|
0.43
|
|
|
9,653,728
|
|
$
|
0.46
|
|
The
following table summarizes information related to stock options outstanding
at
December 31, 2007:
EQUITY
COMPENSATION PLAN INFORMATION
|
|
NUMBER OF SECURITIES TO BE
ISSUED UPON EXERCISE OF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
|
|
WEIGHTED-AVERAGE
EXERCISE PRICE OF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
|
|
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
EQUITY COMPENSATION PLANS
(EXCLUDING SECURITIES REFLECTED
IN COLUMN(A))
|
|
|
|
(A)
|
|
(B)
|
|
(C)
|
|
|
|
|
3,150,000
|
|
|
0.22
|
|
|
1,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
7,178,728
|
|
|
0.52
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,328,728
|
|
|
|
|
|
1,850,000
|
|
From
time
to time, the Company issues warrants to employees and to third parties pursuant
to various agreements, which are not approved by the shareholders.
See
discussion of Plan approval by the shareholders in the accompanying financial
statements.
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-KSB. Certain statements contained herein that are not related
to
historical results, including, without limitation, statements regarding the
Company's business strategy and objectives, future financial position,
expectations about pending litigation and estimated cost savings, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act") and involve risks and uncertainties. Although the
Company believes that the assumptions on which these forward-looking statements
are based are reasonable, there can be no assurance that such assumptions will
prove to be accurate and actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, regulatory
policies, competition from other similar businesses, and market and general
policies, competition from other similar businesses, and market and general
economic factors. All forward-looking statements contained in this Form 10-KSB
are qualified in their entirety by this statement.
OVERVIEW
The
earnings of New Century Companies for the year ended 2007 were negative as
a
result of high non cash interest expense resulting from debt discount
amortization related to two convertible notes, debt expenses, and non cash
stock
expenses for investor relations and employee options. The Company's current
strategy is to expand its customer sales base with its present line of machine
products. Plans for expansion are expected to be funded through current working
capital from ongoing sales. However, significant growth will require additional
funds in the form of debt or equity, or a combination thereof. The Company's
growth strategy also includes strategic acquisitions in addition to growing
the
current business. A significant acquisition will require additional financing.
Revenues.
New Century generated revenues of $10,048,309 for the fiscal year ended December
31, 2007, which was a 21% increase from $8,318,957 for the fiscal year ended
December 31, 2006. The increase is the result of increased volume and selling
prices of New Century machines due to availability for competitive
machines.
Gross
Profit. There was a 13% increase in gross profit for the fiscal year ended
December 31, 2007, of $238,858, due to the increased volume of sales and higher
selling prices.
Operating
Loss. There was a decrease of 32% in operating loss for the fiscal year ended
December 31, 2007, from operating loss of $(251,421) for the fiscal year ended
December 31, 2006 to an operating loss of $(332,625) for the fiscal year ended
December 31, 2007. Although there was a 21% increase in revenues from the fiscal
year ended December 31, 2006 to the fiscal year ended December 31, 2007, our
consulting expenses increased 85% from $520,346 for the fiscal year ended
December 31, 2006 to $964,570 for the fiscal year ended December 31, 2007.
The
increase in consulting expenses was due primarily due to consulting services
for
filing the Company’s SB-2 and secondarily to increased corporate awareness
services.
Interest
Expense. Interest expense for the fiscal year ended December 31, 2007 increased
to $3,153,781, compared to $2,363,187 for the period ended December 31, 2006.
The increase of approximately $791,000 is primarily the result of approximately
$650,000 additional penalties and interest due to defaulting on CAMOFI
loan.
RESULTS
OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2006 COMPARED TO DECEMBER 31,
2005.
Revenues.
New Century generated revenues of $8,318,959 for the fiscal year ended December
31, 2006, which was a 38% increase from $6,038,459 for the fiscal year ended
December 31, 2005. The increase is the result of an increase in sales based
on
higher selling prices of New Century machines.
Gross
Profit. There was a 10% increase in gross profit for the fiscal year ended
December 31, 2006, of $166,228, due to the increased volume of sales and higher
selling prices.
Net
Loss.
Net income decreased to a loss of ($1,051,744) for the fiscal year ended
December 31, 2006 compared to net income of $668,359 for the fiscal year ended
December 31, 2005. The decrease in net income is primarily attributed to
approximately $2,150,000 increase in interest including debt discount
amortization and a $910,074 increase in general and administrative expenses,
due
to bad debt expenses, legal expenses associated with SB2 filings, investor
relations cost, and penalties on late payments on accounts payable.
Interest
Expense. Interest expense for the fiscal year ending December 31, 2006 increased
to $2,363,187, compared to $215,827 for the period ended December 31, 2005.
The
increase of approximately $2.1 million is primarily the result of $1,320,522
debt discount amortization, $347,980 deferred financing cost, and $300,000
fair
value of 1.5 million warrants granted as a consideration for waiver of accrued
the liquidated damages, all related to $3.8 million convertible notes issued
in
the first quarter of 2006.
Our
principal sources of liquidity have been cash provided by operations, equity
offerings and borrowings under our various credit facilities. Our principal
uses
of cash have been to finance working capital. We anticipate financing working
capital, facility expansions and other capital expenditures will be our
principal uses of cash in the future.
It
is our
policy to carefully monitor the state of our business, cash requirements and
capital structure. We believe that funds generated from our operations and
available from our borrowing facilities will be sufficient to fund current
business operations as well as anticipated growth over at least the next twelve
months; however, there can be no assurance that any growth will occur and
unexpected events may result in our need to raise additional capital.
The
net
cash increase during the fiscal year ended 2007 was $228,411. For the year
ended
December 31, 2007, the cash provided from operating activities was $767,115,
compared with $(1,642,740) used cash in operating activities in the prior year.
For the year ended December 31, 2007, the cash used in financing activities
was
$(506,479), compared with $1,696,058 cash provided by financing activities
in
the prior year. The decrease in 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. For
the
year ended December 31, 2007, the cash used in investing activities was
($32,225), compared with no cash was used in or provided by investing activities
in 2006.
INFLATION
AND CHANGING PRICES
The
Company does not foresee any adverse effects on its earnings as a result of
inflation or changing prices.
OFF-BALANCE
SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We
have
no off-balance sheet arrangements, as defined in Regulation S-B Section 303.
On
February 8, 2008, the Company entered in to a lease agreement for its warehouse
and offices. The agreement is for 12 months, totaling $360,000
rent.
GOING
CONCERN
The
Company's independent registered public accounting firm has stated in their
report included in this Form 10-KSB, that the Company has accumulated
deficit of approximately $11,233,000, working capital deficit of approximately
$1,425,000 and was also in default on its CAMOFI convertible debt (See Note
6).
These factors, among others raise substantial doubt about the Company’s ability
to
continue as a going concern. The company intends to fund operations through
anticipated increased sales 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,
2008. 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.
|
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect
the
amounts reported in the our consolidated financial statements and the
accompanying notes. The amounts of assets and liabilities reported on our
balance sheet and the amounts of revenues and expenses reported for each of
our
fiscal periods are affected by estimates and assumptions, which are used for,
but not limited to, the accounting for revenue recognition, accounts receivable,
doubtful accounts and inventories. Actual results could differ from these
estimates. The following critical accounting policies are significantly affected
by judgments, assumptions and estimates used in the preparation of the financial
statements:
Revenue
Recognition
Service
revenues are billed and recognized in the period the services are rendered.
The
Company accounts for shipping and handling fees and costs in accordance with
EITF 00-10 "Accounting for Shipping and Handling Fees and Costs." Such fees
and
costs incurred by the Company are immaterial to the operations of the Company.
In
accordance with SFAS 48, "Revenue Recognition when Right of Return Exists,"
revenue is recorded net of an estimate of markdowns, price concessions and
warranty costs. Such reserve is based on management's evaluation of historical
experience, current industry trends and estimated costs.
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 from stock inventory 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 materially differ from those estimates.
Accumulated
Preferred Dividend and Waiver Of Preferred Dividend
As
of
December 31, 2007, the Company accumulated unpaid dividends totaling $376,725.
At December 31, 2007, the Company had a total of 26,880 preferred shares Series
C and 11,640 preferred shares Series D issued and outstanding.
As
of
December 31, 2006, the Company accumulated dividends payable 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. At December 31, 2006, the Company had a total
of
27,780 preferred shares Series C and 11,640 preferred shares Series D issued
and
outstanding.
Other
Significant Accounting Policies
Other
significant accounting policies not involving the same level of measurement
uncertainties as those discussed above, are nevertheless important to an
understanding of the financial statements. The policies related to consolidation
and loss contingencies require difficult judgments on complex matters that
are
often subject to multiple sources of authoritative guidance. Certain of these
matters are among topics currently under reexamination by accounting standards
setters and regulators. Although no specific conclusions reached by these
standards setters appear likely to cause a material change in our accounting
policies, outcomes cannot be predicted with confidence. Also see Note 1 of
Notes
to Consolidated Financial Statements, Summary of Significant Accounting
Policies, which discusses accounting policies that must be selected by
management when there are acceptable alternatives.
Income
Taxes
Income
taxes are accounted for in accordance with Statement of Financial Accounting
Standards No. 109, Accounting
for Income Taxes
(“SFAS
109”). This statement requires the recognition of deferred tax assets and
liabilities to reflect the future tax consequences of events that have been
recognized in the Company’s financial statements or tax returns. Measurement of
the deferred items is based on enacted tax laws. In the event the future
consequences of differences between financial reporting bases and tax bases
of
the Company’s assets and liabilities result in a deferred tax asset,
SFAS 109 requires an evaluation of the probability of being able to realize
the future benefits indicated by such assets. A valuation allowance related
to a
deferred tax asset is recorded when it is more likely than not that some portion
or all of the deferred tax asset will not be realized. A full valuation
allowance for deferred tax assets has been provided at December 31, 2007
and 2006. The valuation allowance approximates $4,921,000 and $4,527,000 for
the
years ended December 31, 2007 and 2006, respectively. (See Note 7)
Stock-Based
Compensation
Effective
January 1, 2006, we adopted the fair value method of accounting for employee
stock compensation
cost
pursuant to SFAS
No. 123(R), Share-Based
Payments.
Prior
to that date, we used the intrinsic value method under Accounting Policy Board
Opinion No. 25 to recognize compensation cost. Under the method of accounting
for the change to the fair value method, compensation
cost
recognized is the same amount that would have been recognized if the fair value
method would have been used for all awards granted. The effects on net income
and income per share had the fair value method been applied to all outstanding
and unvested awards in each period are reflected in Note 1 of the financial
statements.
Our
assumptions made for purposes of estimating the fair value of our stock options,
as well as a summary of the activity under our stock option plan are included
in
Note 1 of the financial statements.
We
account for the stock options granted to non-employees in accordance with EITF
Issue No. 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for
Acquiring,
or
in Conjunction with Selling, Goods or Services,
and
SFAS No. 123(R).
Significant
Recent Accounting Pronouncements
In
September 2006, the FASB issued SFAS No.157, “Fair Value Measurements,” which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures
about
fair value measurements. SFAS No. 157 simplifies and codifies related guidance
within GAAP, but does not require any new fair value measurements. The guidance
in SFAS No. 157 applies to derivatives and other financial instruments measured
at estimated fair value under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” and related pronouncements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Management
does not expect the adoption of SFAS No. 157 to have a significant effect
on the
Company’s financial position or results of operation.
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 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.
In
December 2007, the FASB issued SFAS No. 141(R), Business
Combinations.
SFAS
No. 141(R) retains the fundamental requirements in SFAS No. 141, Business
Combinations,
that
the acquisition method of accounting be used for all business combinations
and
for an acquirer to be identified for each business combination. SFAS No.
141(R)
requires an acquirer to recognize the assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree at the acquisition date,
measured at their fair values as of that date, with limited exceptions specified
in SFAS No. 141(R). In addition, SFAS No. 141(R) requires acquisition costs
and
restructuring costs that the acquirer expected but was not obligated to incur
to
be recognized separately from the business combination, therefore, expensed
instead of part of the purchase price allocation. SFAS No. 141(R) will be
applied prospectively to business combinations for which the acquisition
date is
on or after the beginning of the first annual reporting period beginning
on or
after December 15, 2008. Early adoption is prohibited. The Company expects
to
adopt SFAS No. 141(R) to any business combinations with an acquisition date
on
or after January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment to ARB No.
51.
SFAS
No. 160 changes the accounting and reporting for minority interests, which
will
be recharacterized as noncontrolling interests and classified as a component
of
equity. SFAS No. 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. Early adoption
is
prohibited. The Company is currently evaluating the impact SFAS No. 160 may
have
on its consolidated financial statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force, or “EITF”), the AICPA, and the SEC did not or are not
believed by management to have a material impact on the Company’s present or
future consolidated financial statements.
ITEM
7. FINANCIAL STATEMENTS.
The
Consolidated Financial Statements of the Company are set forth at the end
hereof.
None.
Evaluation
of Disclosure Controls and Procedures
We
conducted an evaluation under the supervision and with the participation of
our
management, including our Chief Executive Officer,
who is
also our Chief Financial Officer,
of the
effectiveness of the design and operation of our disclosure controls and
procedures. The term “disclosure controls and procedures,” as defined in Rules
13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended (“Exchange Act”), means controls and other procedures of a company that
are designed to ensure that information required to be disclosed by the company
in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures also include, without limitation, controls and procedures designed
to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate,
to
allow timely decisions regarding required disclosure. Based on this evaluation,
our Chief Executive Officer concluded as of December 31, 2007 that our
disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses discussed immediately below.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in
accordance with generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures
that:
|
(i)
|
pertain
to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of our
assets;
|
|
(ii)
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with generally
accepted
accounting principles, and that our receipts and expenditures are
being
made only in accordance with authorizations of our management and
directors; and
|
|
(iii)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could
have
a material affect on our financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A
material weakness in internal control over financial reporting is defined by
the
Public Company Accounting Oversight Board’s Audit Standard No. 5 as being a
deficiency, or combination of deficiencies, that results in a reasonable
possibility that a material misstatement of the financial statements would
not
be prevented or detected on a timely basis. A significant deficiency is a
control deficiency, or combination of control deficiencies, such that there
is a
reasonable possibility that a significant misstatement of the company’s annual
or interim financial statements will not be prevented or detected.
Management
assessed and evaluated the effectiveness of our internal control over financial
reporting as of December 31, 2007. Management identified five material
weaknesses relating to our internal control over financial reporting, as
follows:
|
(1)
|
We
had not effectively implemented comprehensive entity-level internal
controls.
|
|
(2)
|
We
did not have a sufficient complement of personnel with appropriate
training and experience in generally accepted accounting principals,
or
GAAP.
|
|
(3)
|
We
did not adequately segregate the duties of different personnel within
our
accounting group due to an insufficient complement of staff.
|
|
(4)
|
We
did not implement financial controls that were properly designed
to meet
the control objectives or address all risks of the processes or the
applicable assertions of the significant
accounts.
|
|
(5)
|
Due
to the material weaknesses identified at our entity level controls
we did
not test whether our financial activity level controls or our information
technology general controls were operating sufficiently to identify
a
deficiency, or combination of deficiencies, that may result in a
reasonable possibility that a material misstatement of the financial
statements would not be prevented or detected on a timely
basis.
|
The
foregoing material weaknesses are described in detail below under the caption
“Material Weaknesses.” As
a
result of these material weaknesses, our Chief Executive Officer concluded
that
we did not maintain effective internal control over financial reporting as
of
December 31, 2007.
In
making
its assessment of our internal control over financial reporting, management
used
criteria issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in its Internal
Control-Integrated Framework.
Because
of the material weaknesses described above, management believes that, as of
December 31, 2007, we did not maintain effective internal control over financial
reporting.
An
independent firm assisted management with its assessment of the effectiveness
of
our internal control over financial reporting, including scope determination,
planning, staffing, documentation, testing, and overall program management
of
the assessment project.
Inherent
Limitations on the Effectiveness of Controls
Management
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all errors and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
systems are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in
a
cost-effective control system, no evaluation of internal control over financial
reporting can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and instances of fraud, if
any,
have been or will be detected.
These
inherent limitations include the realities that judgments in decision-making
can
be faulty and that breakdowns can occur because of a simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls.
The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.
Material
Weaknesses
(1) We
had not effectively implemented comprehensive entity-level internal controls,
as
evidenced by the following deficiencies:
· We
did
not establish an independent Audit Committee who are responsible for the
oversight of the financial reporting process, nor was an Audit Committee Charter
defined. At the current time we do not have any independent members of the
Board
who could comprise this committee.
· We
did
not establish an adequate Whistle Blower program for the receipt, retention,
and
treatment of complaints received by the issuer regarding accounting, internal
accounting controls, or auditing matters; and the confidential, anonymous
submission by employees of the issuer of concerns regarding questionable
accounting or auditing matters to the Audit Committee and Board of
Directors.
· We
did
not have an individual on our Board, nor on the Audit Committee, who meets
the
“Financial Expert” criteria.
· We
did
not maintain documentation evidencing quarterly or other meetings between the
Board, senior financial managers and our General Counsel. Such meetings include
reviewing and approving quarterly and annual filings with the Securities and
Exchange Commission and reviewing on-going activities to determine if there
are
any potential audit related issues which may warrant involvement and follow-up
action by the Board.
· We
did
not follow a formal fraud assessment process to identify and design adequate
internal controls to mitigate those risks not deemed to be acceptable.
· We
did
not conduct annual performance reviews or evaluations of our management and
staff employees.
(2) We
did
not have a sufficient complement of personnel with appropriate training and
experience in GAAP, as evidenced by the following deficiencies:
· We
do not
have a formally trained Chief Financial Officer who is responsible for the
oversight of the accounting function. Currently the CEO is responsible for
this
function, but has not had formal accounting or auditing experience.
· The
Controller is the only individual with technical accounting experience in our
company but is limited in the exposure to SEC filings and disclosures and is
not
a full-time employee of the company.
· We
have
not consulted with other outside parties to assist us in the SEC filings and
disclosures prior to the 12/31/07 10-K filing during 2007.
(3) We
did
not adequately segregate the duties of different personnel within our accounting
group due to an insufficient complement of staff and inadequate management
oversight.
(4) We
did
not adequately design internal controls that:
|
·
|
The
controls identified in the process documentation were not designed
effectively and had no evidence of operating effectiveness for testing
purposes.
|
|
·
|
The
controls identified in the process documentation did not cover all
the
risks for the specific process
|
|
·
|
The
controls identified in the process documentation did not cover all
applicable assertions for the significant
accounts.
|
(5) Due
to
the material weaknesses identified at our entity level controls we did not
test
whether our financial activity level controls or our information technology
general controls were operating sufficiently to identify a deficiency, or
combination of deficiencies, that may result in a reasonable possibility that
a
material misstatement of the financial statements would not be prevented or
detected on a timely basis.
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS, AND CORPORATE
GOVERNANCE;
COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The
following table and text sets forth the names and ages of all directors and
executive officers of the Company and the key management personnel as of
December 31, 2007. The Board of Directors of the Company is comprised of only
one class. All of the directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
stockholders. Also provided is a brief description of the business experience
of
each director and executive officer and the key management personnel during
the
past five years and an indication of directorships held by each director in
other companies subject to the reporting requirements under the Federal
securities laws.
NAME
|
|
AGE
|
|
POSITION
|
|
|
|
|
|
David
Duquette
|
|
63
|
|
Chairman
of the Board, Chief
|
|
|
|
|
Financial
Officer, President and Director
|
Josef
Czikmantori
|
|
56
|
|
Secretary
and Director
|
DAVID
DUQUETTE. Mr. Duquette has served as the Chairman of the Board, President,
Chief
Financial Officer and Director of the Company since May 25, 2001. Mr. Duquette
has been in the CNC machine tool manufacturing and remanufacturing business
since 1967. From 1962 to 1965, he studied Electrical Engineering at the
University of Wisconsin. Mr. Duquette founded New Century Remanufacturing in
1996. Prior to that year, he managed Orange Coast Rebuilding for approximately
8
years. Mr. Duquette was President of U.S. Machine Tools from 1969 to 1985.
JOSEF
CZIKMANTORI. Mr. Czikmantori has served as Secretary and Director of the Company
since May 25, 2001. Mr. Czikmantori was born in Romania. He completed 3 years
of
Technical College in Romania and then worked for United Machine Tool, which
manufactured metal cutting machinery. He joined Mr. David Duquette at Orange
Coast Machine Tools. He is a co-founder of New Century Remanufacturing.
Directors
receive no compensation for serving on the Board of Directors.
FAMILY
RELATIONSHIPS.
There
are
no family relationships between or among the directors, executive officers
or
persons nominated or charged by the Company to become directors or executive
officers.
INVOLVEMENT
IN LEGAL PROCEEDINGS.
To
the
best of the Company's knowledge, during the past five years, none of the
following occurred with respect to a present or former director or executive
officer of the Company: (1) any bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time; (2) any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses); (3) being
subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any court of any competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities; and (4) being found
by a court of competent jurisdiction (in a civil action), the SEC or the
Commodities Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.
SECTION
16(A) BENEFICIAL OWNERSHIP COMPLIANCE.
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
executive officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission initial statements of beneficial ownership, reports
of
changes in ownership and annual reports concerning their ownership of common
stock and other equity securities of the Company, on Forms 3, 4 and 5,
respectively. Executive officers, directors and greater than 10% shareholders
are required by Commission regulations to furnish the Company with copies of
all
Section 16(a) reports they file. To the best of the Company's knowledge (based
solely upon a review of the Forms 3, 4 and 5 filed), no officer, director or
10%
beneficial shareholder failed to file on a timely basis for the fiscal year
ended December 31, 2007 any reports required by Section 16(a) of the Securities
Exchange Act of 1934, as amended.
CODE
OF ETHICS
The
Company management communicates values and ethical standards during company
wide
meetings. Such standards are outlined in the human resource manual of the
company, “Code of Business Practices and Ethics” section.
AUDIT
COMMITTEE FINANCIAL EXPERT
The
Company does not have an audit committee. Since our securities are not currently
listed on or with a national securities exchange or national securities
association, we are not required to have an independent audit committee.
Therefore, the Company has not designated an audit committee financial expert.
The Company currently is in the process of identifying independent audit
committee members, including a financial expert to serve on our audit committee
and we expect to continue this process in 2008. Because of our size, we do
not
have an audit committee, compensation committee or nominating committee.
STOCKHOLDER
COMMUNICATIONS
Stockholders
interested in communicating directly with the Board of Directors, or specified
individual directors, my write to us at 9835 Santa Fe Springs Rd., Santa Fe
Springs, CA 90670. Mr. David Duquette will review all such correspondence and
will regularly forward to the Board copies of all such correspondence that
deals
with the functions of the Board.
COMPLIANCE
WITH SECTION 16 OF THE EXCHANGE ACT
To
the
Company’s knowledge, based solely on its review of the copies of Section 16
reports furnished to the Company, the Company believes that all individual
filing requirements applicable to the Company’s directors and executive officers
were complied with.
ITEM
10. EXECUTIVE COMPENSATION.
SUMMARY
COMPENSATION TABLE
The
following Summary Compensation Table sets forth the compensation earned by
the
Company's Chief Executive Officer and the other executive officer who were
serving as such as of December 31, 2007, for services rendered in all capacity
for that fiscal year. There are not any other employees having responsibility
for significant policy decision within the company.
Name and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus ($)
|
|
Option
Awards
(1)
($)
|
|
All Other
Compensation ($)
|
|
Total
($)
|
|
David
Duquette,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer,
|
|
|
2007
|
|
|
200,000
|
|
|
0
|
|
|
158,400
|
|
|
0
|
|
|
358,400
|
|
Chief
Financial Officer
|
|
|
2006
|
|
|
155,000
|
|
|
0
|
|
|
21,600
|
|
|
0
|
|
|
176,600
|
|
and
President
|
|
|
2005
|
|
|
101,273
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
101,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Josef
Czikmantory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vise
President,
|
|
|
2007
|
|
|
108,300
|
|
|
0
|
|
|
79,200
|
|
|
0
|
|
|
187,500
|
|
Secretary
Officer
|
|
|
2006
|
|
|
88,350
|
|
|
0
|
|
|
10,800
|
|
|
0
|
|
|
99,150
|
|
|
|
|
2005
|
|
|
25,650
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
25,650
|
|
(1)
Valuation based on the dollar amount of option grants recognized for financial
statement reporting purposes pursuant to FAS 123(R) with respect to 2006 and
2007.
(2)
Mr.
David Duquette received a stock option grant of 1,000,000 shares in November
13,
2006 at an exercise price of $0.20 per share, fully vested and exercisable
after
December 1, 2007.
(3)
Mr.
Josef Czikmantory received a stock option grant of 500,000 shares in November
13, 2006 at an exercise price of $0.20 per share, fully vested and exercisable
after December 1, 2007.
2007
GRANTS OF PLAN-BASED AWARDS TABLE
|
|
|
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
|
|
Exercise or
Base Price
of Option
|
|
Closing
Price on
Grant
|
|
Grant Date
Fair
Value of
Stock and
|
|
Name
|
|
Grant
Date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
|
|
|
|
Option
Awards
($)
|
|
|
|
|
|
(1)
|
|
(2)
|
|
(3)
|
|
|
|
|
|
|
|
David
Duquette
|
|
|
09/12/03
|
|
|
72,000
|
|
|
-
|
|
|
100,000
|
|
|
0.25
|
|
|
-
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/13/06
|
|
|
180,000
|
|
|
-
|
|
|
200,000
|
|
|
0.20
|
|
|
0.18
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Josef
Czikmantory
|
|
|
09/12/03
|
|
|
27,000
|
|
|
-
|
|
|
37,500
|
|
|
0.25
|
|
|
-
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/13/06
|
|
|
90,000
|
|
|
-
|
|
|
100,000
|
|
|
0.20
|
|
|
0.18
|
|
|
0.18
|
|
(2)
December 31, 2007 remaining compensation expense of options evaluated using
closing price on grant date.
(3)
December 31, 2007 unexercised options valuated at exercise price of
options.
|
|
Option
Awards
|
|
|
|
Number of
Securities Underlying Unexercised
Options (#)
|
|
Number of
Securities Underlying Unexercised
Options (#)
|
|
Equity Incentive
Plan Awards: Number of Securities Underlying Unexercised
Unearned
|
|
Option
Exercise
|
|
Option
Expiration
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Options
(#)
|
|
Price
($)
|
|
Date
|
|
David
Duquette
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
400,000
|
|
|
0
|
|
|
0
|
|
|
0.25
|
|
|
09/12/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
1,000,000
|
|
|
0
|
|
|
0
|
|
|
0.20
|
|
|
11/13/11
|
|
Josef
Czikmantory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
150,000
|
|
|
0
|
|
|
0
|
|
|
0.25
|
|
|
09/12/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
500,000
|
|
|
0
|
|
|
0
|
|
|
0.20
|
|
|
11/13/11
|
|
(1)
(2) These options were fully vested as of December 31, 2007.
Pension
Benefits
We
do not
sponsor any qualified or non-qualified defined benefit plans.
Nonqualified
Deferred Compensation
We
do not
maintain any non-qualified defined contribution or deferred compensation
plans.
As
of
December 31, 2007 there is no long-term incentive plan.
The
Company have no employment agreements with its executive
officers.
The
following table sets forth the number of shares of common stock beneficially
owned as of December 31, 2007 by (i) those persons or groups known to the
Company who will beneficially own more than 5% of the Company's common stock;
(ii) each director and director nominee; (iii) each executive officer; and,
(iv)
all directors and executive officers as a group. The information is determined
in accordance with Rule 13(d)-3 promulgated under the Exchange Act based upon
information furnished by persons listed or contained in filings made by them
with the Securities and Exchange Commission by information provided by such
persons directly to the Company. Except as indicated below, the stockholders
listed possess sole voting and investment power with respect to their shares.
NAME
OF BENEFICIAL OWNER
|
|
NO.
OF SHARES
|
|
PERCENTAGE
OFOWNERSHIP
|
|
David
Duquette
|
|
|
2,433,334
|
(1)
|
|
18
|
%
|
Josef
Czikmantori
|
|
|
1,150,000
|
(2)
|
|
8
|
%
|
|
|
|
|
|
|
|
|
Officers
and Directors as a Group (2 persons)
|
|
|
3,583,334
|
|
|
26
|
%
|
Based
on
13,744,656 shares outstanding. Common stock subject to options or warrants
that
are currently exercisable or exercisable within 60 days of December 31, 2007
are
deemed to be outstanding and to be beneficially owned by the holder thereof
for
the purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage ownership
of
any other person.
(1)
Includes options to purchase 1,400,000 shares (ISOP).
(2)
Includes options to purchase 650,000 shares (ISOP).
EQUITY
COMPENSATION PLAN INFORMATION
|
|
NUMBER OF SECURITIES TO BE
ISSUED UPON EXERCISE OF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
|
|
WEIGHTED-AVERAGE
EXERCISE PRICE OF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
|
|
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
EQUITY COMPENSATION PLANS
(EXCLUDING SECURITIES REFLECTED
IN COLUMN(A))
|
|
|
|
(A)
|
|
(B)
|
|
(C)
|
|
|
|
|
3,150,000
|
|
|
0.22
|
|
|
1,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
7,178,728
|
|
|
0.52
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,328,728
|
|
|
|
|
|
1,850,000
|
|
From
time
to time, the Company issues warrants to employees and to third parties pursuant
to various agreements, which are not approved by the shareholders.
See
discussion of Plan approval by the shareholders in the accompanying financial
statements.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
NOTES
RECEIVABLE FROM STOCKHOLDERS
As
of
December 31, 2007, the Company had loans to our officers for $585,298, including
accrued interest. The loans accrue interest at 6% and are due on demand. The
Company has reclassified the notes receivable from stockholders to stockholders'
equity as such amounts have not been repaid during the current year. The
stockholders have shown the ability to repay the loans and intend on repaying
such amounts in the future. For each of the years ended December 31, 2007 and
2006, total interest income from notes receivable from stockholders approximated
$20,000.
ITEM
13. EXHIBITS.
EXHIBIT
NUMBER
|
|
DESCRIPTION
|
|
|
|
2.1
|
|
Share
Exchange Agreement dated as of December 18, 2000. (1)
|
|
|
|
3.1
|
|
Certificate
of Incorporation as filed with the Delaware Secretary of State,
as
amended.(2)
|
|
|
|
3.2
|
|
Certificate
of Amendment to the Certificate of Incorporation as filed with
the
Delaware Secretary of State.(3)
|
|
|
|
3.2
|
|
Bylaws.
(2)
|
|
|
|
10.1
|
|
Agreement
and Plan of Merger, dated as of May 25, 2003, by and among
Internetmercado.com, Inc., New Century Remanufacturing, Inc., New
Century
Acquisition Corporation, David Duquette and Josef Czikmantori;
(4)
|
|
|
|
10.2
|
|
Series
A Convertible Note issued to Motivated Minds, LLC dated February
28, 2006
(6)
|
|
|
|
10.3
|
|
Common
Stock Purchase Warrants issued to Motivated Minds, LLC dated February
28,
2006 (6)
|
|
|
|
10.4
|
|
Registration
Rights Agreement dated February 15, 2006 (6)
|
|
|
|
10.5
|
|
Securities
Purchase Agreement between New Century Companies, Inc. and CAMOFI
Master
LDC (5)
|
|
|
|
10.6
|
|
12%
Senior Secured Convertible Note issued by New Century Companies,
Inc. in
favor of CAMOFI Master LDC (5)
|
|
|
|
10.7
|
|
Common
Stock Purchase Warrant issued to CAMOFI Master LDC (5)
|
|
|
|
10.8
|
|
Registration
Rights Agreement between New Century Companies, Inc. and CAMOFI
Master LDC
(5)
|
|
|
|
10.9
|
|
Escrow
Agreement between New Century Companies, Inc., CAMOFI Master LDC
and
Katten Muchin Rosenman LLP, as Escrow Agent (5)
|
|
|
|
10.10
|
|
Security
Agreement between New Century Companies, Inc. and its current and
future
subsidiaries on the one hand, and CAMOFI Master LDC on the other
hand
(5)
|
|
|
|
10.11
|
|
Subsidiary
Guarantee provided by all current and future subsidiaries of New
Century
Companies, Inc. to CAMOFI Master LDC (5)
|
|
|
|
10.12
|
|
Lock-up
Agreement with certain shareholders of New Century Companies, Inc.
(5)
|
|
|
|
10.13
|
|
Allonge
to Series A Convertible Note dated August 8, 2006 (8)
|
|
|
|
10.14
|
|
Amendment
to Registration Rights Agreement dated August 8, 2006
(8)
|
|
|
|
10.15
|
|
Amended
and Restated Registration Rights Agreement dated December 19, 2006
(7)
|
|
|
|
10.16
|
|
Common
Stock Purchase Warrants issued to Motivated Minds, LLC dated December
19,
2006 (7)
|
|
|
|
10.17
|
|
Amended
and Restated Registration Rights Agreement dated May 1,
2007(9)
|
|
|
|
10.18
|
|
July
18, 2007 CAMOFI Master LDC’ waiver of right to require registration of 33%
of New Century Companies, Inc’ outstanding stock , (10)
|
|
|
|
10.18
|
|
Placement
Agent agreement with Ascendiant Securities, LLC dated January 26,
2006
(9)
|
|
|
|
21.1
|
|
Subsidiaries
of the Company (6).
|
|
|
|
23.1
|
|
Consent
of Squar, Milner, Peterson, Miranda, & Williamson, LLP (filed
herewith)
|
31.1
|
|
Certification
required by Rule 13a-14(a) or rule 15d-14(d) and under Section 302
of the
Sarbanes-Oxley act of 2002.
|
|
|
|
31.2
|
|
Certification
required by Rule 13a-14(a) or rule 15d-14(d) and under Section 906
of the
Sarbanes-Oxley act of 2002.
|
|
|
|
|
|
Incorporated
herein by reference from the Company's filing on Form 8-K filed on
August
23, 2000.
|
|
|
|
(2)
|
|
Incorporated
by reference to Exhibit 2.1 the Company's Registration Statement
on Form
C-18, filed on August 14, 1980.
|
|
|
|
(3)
|
|
Incorporated
by reference to 8-K filed June 4, 2003
|
|
|
|
(4)
|
|
Incorporated
by reference to the Exhibit 2.1 of the 8-K filed June 4,
2003.
|
|
|
|
(5)
|
|
Incorporated
by reference to the Company’s Form 8-K filed on March 13,
2006
|
|
|
|
(6)
|
|
Incorporated
by reference to the Company’s Form SB-2 Registration Statement filed on
June 8, 2006
|
|
|
|
(7)
|
|
Incorporated
by reference to the Company’s Form 8-K filed on December 26,
2006
|
|
|
|
(8)
|
|
Incorporated
by reference to the Company’s Registration Statement on Form SB-2 filed on
January 23, 2007
|
|
|
|
(9)
|
|
Incorporated
by reference to the Company’s Registration Statement on Form SB-2 filed on
May 31, 2007
|
|
|
|
(10)
|
|
Incorporated
by reference to the Company’s Registration Statement on Form SB-2 filed on
July 19, 2007
|
The
following table presents fees for professional services rendered by Squar,
Milner, Peterson, Miranda & Williamson LLP ("Squar Milner") for the annual
audit of our consolidated financial statements as of and for the years ended
December 31, 2007, and 2006 and fees billed for other services rendered by
Squar
Milner during such years:
For
the
Years Ended December 31,
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Audit
Fees (1)
|
|
$
|
123,000
|
|
$
|
107,000
|
|
Audit
Related Fees
|
|
$
|
10,700
|
|
|
-
|
|
Tax
Fees
|
|
$
|
8,900
|
|
$
|
8,400
|
|
All
Other Fees (2)
|
|
$
|
53,700
|
|
$
|
20,100
|
|
|
|
$
|
196,300
|
|
$
|
135,500
|
|
(1)
Such
billings include the quarterly reviews.
(2)
Such
billings were in connection with review of 2007 SB-2 filings and SEC Comment
letters.
POLICY
ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
OF
INDEPENDENT AUDITOR
The
Company does not have an audit committee. Therefore, the Board of Directors
is
responsible for pre-approving all audits and permitted non-audit services to
be
performed for us by our independent auditor.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Company caused
this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:
May 15, 2008
|
NEW
CENTURY COMPANIES, INC.
|
|
|
|
/s/
DAVID DUQUETTE
|
|
Name: David
Duquette
|
|
Title: Chairman,
President and Director
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.
Date:
May 15, 2008
|
/s/
DAVID DUQUETTE
|
|
Name: David
Duquette
|
|
Title: Chairman,
President and Director
|
|
|
Date:
May 15, 2008
|
/s/
JOSEF CZIKMANTORI
|
|
Name: Josef
Czikmantori
|
|
Title: Secretary
and Director
|
NEW
CENTURY COMPANIES, INC.
AND
SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Consolidated
Balance Sheet
|
F-2
|
|
|
Consolidated
Statements of Operations
|
F-3
|
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
F-4
|
|
|
Consolidated
Statements of Cash Flows
|
F-5
|
|
|
Notes
to Consolidated Financial Statements
|
F-6
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To
the
Board of Directors and Stockholders of
New
Century Companies, Inc. and Subsidiary
We
have
audited the accompanying consolidated balance sheet of New Century Companies,
Inc. and Subsidiary (the "Company") as of December 31, 2007, and the related
consolidated statements of operations, stockholders’ equity (deficit) and cash
flows for each of the two years in the period ended December 31, 2007. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
was not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit includes consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well
as evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of New Century Companies,
Inc.
and Subsidiary as of December 31, 2007, and the results of their operations
and
their cash flows for each of the two years in the period ended December 31,
2007
in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has an accumulated deficit of
approximately $11,233,000, a working capital deficit of approximately $1,425,000
and was in default on its convertible debt. This factor, among others, raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans regarding these matters are also described in Note 1. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
SQUAR, MILNER, PETERSON,
MIRANDA & WILLIAMSON, LLP
May
14,
2008
Newport
Beach, California
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEET
December
31, 2007
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
|
$
|
281,729
|
|
Contract
receivables, net
|
|
|
438,876
|
|
Inventories,
net
|
|
|
886,107
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
570,797
|
|
Deferred
financing costs, net of current portion
|
|
|
358,292
|
|
Prepaid
expenses and other current assets
|
|
|
14,183
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,549,984
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
269,092
|
|
Deferred
Financing Costs Long Term, net
|
|
|
59,715
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,878,791
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Bank
Overdraft
|
|
$
|
18,962
|
|
Accounts
payable and accrued liabilities
|
|
|
2,074,666
|
|
Dividends
payable
|
|
|
376,725
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
88,025
|
|
Note
payable, net of current portion
|
|
|
25,597
|
|
Convertible
notes payable, net of discount of $1,175,504
|
|
|
1,391,163
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,975,138
|
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
|
Notes
payable, long term portion
|
|
|
37,679
|
|
|
|
|
|
|
Total
long term liabilities
|
|
|
37,679
|
|
|
|
|
|
|
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 $910,000)
|
|
|
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; 13,744,654
shares
issued and outstanding
|
|
|
1,374,466
|
|
Subscriptions
receivable
|
|
|
(462,500
|
)
|
Notes
receivable from stockholders
|
|
|
(545,165
|
)
|
Deferred
consulting fees
|
|
|
(334,921
|
)
|
Additional
paid-in capital
|
|
|
9,748,781
|
|
Accumulated
deficit
|
|
|
(11,232,567
|
)
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
(1,134,026
|
)
|
|
|
|
|
|
Total
Liabilities and Stockholders' equity
|
|
$
|
2,878,791
|
|
See
accompanying notes to the consolidated financial
statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Years Ended December 31, 2007 and 2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTRACT
REVENUES
|
|
$
|
10,048,309
|
|
$
|
8,318,957
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
7,928,255
|
|
|
6,437,761
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
2,120,054
|
|
|
1,881,196
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
Consulting
and other compensation
|
|
|
964,570
|
|
|
520,346
|
|
Salaries
and related
|
|
|
434,623
|
|
|
351,410
|
|
Selling,
general and administrative
|
|
|
1,053,486
|
|
|
1,260,861
|
|
TOTAL
OPERATING EXPENSES
|
|
|
2,452,679
|
|
|
2,132,617
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(332,625
|
)
|
|
(251,421
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
Gain
on writeoff of accounts payable
|
|
|
111,459
|
|
|
41,595
|
|
Derivative
liability
|
|
|
-
|
|
|
1,494,761
|
|
Interest
income
|
|
|
19,838
|
|
|
27,308
|
|
Liquidated
damages
|
|
|
(55,417
|
)
|
|
-
|
|
Interest
expense *
|
|
|
(3,153,781
|
)
|
|
(2,363,187
|
)
|
|
|
|
|
|
|
|
|
TOTAL
OTHER EXPENSES
|
|
|
(3,077,901
|
)
|
|
(799,523
|
)
|
|
|
|
|
|
|
|
|
LOSS
BEFORE PROVISION FOR INCOME
TAXES
|
|
|
(3,410,526
|
)
|
|
(1,050,944
|
)
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
-
|
|
|
800
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(3,410,526
|
)
|
$
|
(1,051,744
|
)
|
|
|
|
|
|
|
|
|
Waived
cumulative preferred dividends
|
|
|
69,750
|
|
|
287,875
|
|
|
|
|
|
|
|
|
|
Annual
cumulative preferred dividends
|
|
|
(83,675
|
)
|
|
(84,800
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS APPLICABLE TO COMMON STOCKHOLDERS
|
|
$
|
(3,424,451
|
)
|
$
|
(848,669
|
)
|
|
|
|
|
|
|
|
|
Basic
net loss applicable to common stockholders per
common share
|
|
$
|
(0.27
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Diluted
net loss applicable to common stockholders per
common share
|
|
$
|
(0.27
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
12,886,382
|
|
|
11,332,289
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
12,886,382
|
|
|
11,332,289
|
|
*
Interest includes $649,865 additional penalties and interest on defaulted
convertible note, debt discount amortization of $1,352,272 and deferred
financing cost amortization of $358,296 for the year ended December 31, 2007,
and debt discount amortization of $1,320,522, deferred financing cost
amortization of $347,980, and $300,000 fair value of 1.5 million warrants
granted as a consideration for waiver of accrued liquidated damages for the
year
ended December 31, 2006, all related to $3.8 million convertible notes issued
in
the first quarter of 2006.
See
accompanying notes to the consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
For
the Years Ended December 31, 2007 and 2006
|
|
Conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock,
Series B
|
|
Stock,
Series C
|
|
Stock,
Series D
|
|
Common
Stock
|
|
|
|
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid
In
Capital
|
|
From
Stockholders
|
|
Compensation
|
|
Receivable
|
|
Deficit)
|
|
(Deficit)
|
|
Balance,
December 31, 2005
|
|
|
-
|
|
$
|
-
|
|
|
28,980
|
|
$
|
28,980
|
|
|
11,640
|
|
$
|
291,000
|
|
|
10,697,266
|
|
$
|
1,069,727
|
|
$
|
5,085,274
|
|
$
|
(505,639
|
)
|
$
|
(254,717
|
)
|
$
|
(462,500
|
)
|
$
|
(6,959,447
|
)
|
$
|
(1,707,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Isssuance
of common stock for consulting services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,000
|
|
|
32,500
|
|
|
(167,750
|
)
|
|
|
|
|
146,936
|
|
|
|
|
|
-
|
|
|
11,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock in connection with convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
3,000
|
|
|
6,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
Conversion Features and Other Debt Discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants for financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269,318
|
|
|
26,932
|
|
|
143,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued for Consulting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,500
|
|
|
|
|
|
(127,500
|
)
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for extension of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,000
|
|
|
10,500
|
|
|
37,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
25,000
|
|
|
132,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Preferred Stock
|
|
|
|
|
|
|
|
|
(1,200
|
)
|
|
(1,200
|
)
|
|
|
|
|
|
|
|
20,000
|
|
|
2,000
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219,012
|
|
|
|
|
|
|
|
|
219,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants for waiver of liquidated damages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360,000
|
|
|
|
|
|
(316,800
|
)
|
|
|
|
|
|
|
|
43,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Preferred Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,075
|
|
|
203,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on Notes Receivable from stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,763
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants for financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Misc.
Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,070
|
|
|
1,807
|
|
|
(1,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of warrant liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
695,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
695,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,051,744
|
)
|
|
(1,051,744
|
)
|
Balance,
December 31, 2006
|
|
|
-
|
|
$
|
-
|
|
|
27,780
|
|
$
|
27,780
|
|
|
11,640
|
|
$
|
291,000
|
|
|
11,714,654
|
|
$
|
1,171,466
|
|
$
|
8,802,564
|
|
$
|
(525,402
|
)
|
$
|
(333,069
|
)
|
$
|
(462,500
|
)
|
$
|
(7,808,116
|
)
|
$
|
1,163,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Isssuance
of common stock for consulting services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,340,000
|
|
|
134,000
|
|
|
470,000
|
|
|
|
|
|
(449,584
|
)
|
|
|
|
|
-
|
|
|
154,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for principal and interest due on convertible
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
675,000
|
|
|
67,500
|
|
|
356,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options for consulting costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
|
|
(120,000
|
)
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Preferred Stock
|
|
|
|
|
|
|
|
|
(900
|
)
|
|
(900
|
)
|
|
|
|
|
|
|
|
15,000
|
|
|
1,500
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270,931
|
|
|
|
|
|
|
|
|
270,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296,801
|
|
|
|
|
|
|
|
|
296,801
|
|
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Preferred Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,925
|
)
|
|
(13,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Notes Receivable from stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on Notes Receivable from stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,763
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,410,526
|
)
|
|
(3,410,526
|
)
|
Balance,
December 31, 2007
|
|
|
-
|
|
$
|
-
|
|
|
26,880
|
|
$
|
26,880
|
|
|
11,640
|
|
$
|
291,000
|
|
|
13,744,654
|
|
$
|
1,374,466
|
|
$
|
9,748,781
|
|
$
|
(545,165
|
)
|
$
|
(334,921
|
)
|
$
|
(462,500
|
)
|
$
|
(11,232,567
|
)
|
$
|
(1,134,025
|
)
|
See
accompanying notes to the consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2007 and 2006
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,410,526
|
)
|
$
|
(1,051,744
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of property and equipment
|
|
|
127,397
|
|
|
146,563
|
|
Gain
on writeoff of accounts payable
|
|
|
111,459
|
|
|
-
|
|
Gain
on forgiveness of debt from waiver of liquidated damages
|
|
|
-
|
|
|
259,185
|
|
Stock
issued for interest expense
|
|
|
-
|
|
|
170,250
|
|
Stock
options grants and amortization of equity instruments
|
|
|
316,800
|
|
|
43,200
|
|
Amortization
of debt discount
|
|
|
-
|
|
|
1,320,522
|
|
Amortization
of deferred consulting fees
|
|
|
250,932
|
|
|
236,435
|
|
Amortization
of deferred financing cost
|
|
|
358,295
|
|
|
347,988
|
|
Amortization
of BCF and Debt discount on convertible notes payable
|
|
|
1,352,274
|
|
|
-
|
|
Bad
debt expense (credit)
|
|
|
158,700
|
|
|
115,158
|
|
Derivative
liability income
|
|
|
-
|
|
|
(1,494,761
|
)
|
Estimated
fair market value of common stock issued for consulting services
and
related change in fair value
|
|
|
154,416
|
|
|
(19,987
|
)
|
Interest
income on notes receivable from stockholders
|
|
|
(19,763
|
)
|
|
(19,763
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Contracts
receivable
|
|
|
(294,015
|
)
|
|
(151,150
|
)
|
Inventories
|
|
|
234,075
|
|
|
(191,235
|
)
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
589,871
|
|
|
(742,913
|
)
|
Prepaid
expenses and other current assets
|
|
|
6,022
|
|
|
(50,380
|
)
|
Accounts
payable and accrued expenses
|
|
|
1,196,064
|
|
|
(517,620
|
)
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
(364,886
|
)
|
|
(48,473
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) in operating activities
|
|
|
767,115
|
|
|
(1,642,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
(32,225
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(32,225
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
|
190
|
|
|
(8,877
|
)
|
Proceeds
of issuance of notes payable
|
|
|
-
|
|
|
3,800,000
|
|
Restricted
cash
|
|
|
123,898
|
|
|
(123,898
|
)
|
Payment
of financing costs
|
|
|
-
|
|
|
(422,500
|
)
|
Principal
payments on notes payable
|
|
|
(630,567
|
)
|
|
(1,548,667
|
)
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(506,479
|
)
|
|
1,696,058
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
228,411
|
|
|
53,318
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
53,318
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
281,729
|
|
$
|
53,318
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
discount on note payable extension
|
|
$
|
-
|
|
$
|
10,500
|
|
|
|
|
|
|
|
|
|
BCF
and Debt discount balance on convertible notes payable
|
|
$
|
1,175,506
|
|
$
|
3,843,300
|
|
|
|
|
|
|
|
|
|
Accrued
cumulative dividends on preferred stock
|
|
$
|
83,675
|
|
$
|
84,800
|
|
|
|
|
|
|
|
|
|
Cumulative
preferred dividends waived
|
|
$
|
69,750
|
|
$
|
287,875
|
|
|
|
|
|
|
|
|
|
Accrued
deffered financing cost
|
|
$
|
-
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
$
|
1,500
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
|
Common
stock issued for settlement and penalties on notes payable
|
|
$
|
67,500
|
|
$
|
310,000
|
|
|
|
|
|
|
|
|
|
Reclassification
of warrant liability to equity
|
|
$
|
-
|
|
$
|
695,239
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued for deferred financing cost
|
|
$
|
-
|
|
$
|
641,790
|
|
See
accompanying notes to the consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Nature of Operations
New
Century Companies, Inc. and Subsidiary (collectively, the "Company"), a
California corporation, was incorporated in March 1996 and is located in
Southern California. 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. It 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.
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 trades on the Over-the-Counter Bulletin Board under the symbol
“NCNC.OB.”
Principles
of Consolidation
The
consolidated financial statements include the accounts of New Century Companies,
Inc. and its wholly owned subsidiary, New Century Remanufacturing. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business. At
of
December 31, 2007, the Company has an accumulated deficit of approximately
$11,233,000, working capital deficit of approximately $1,425,154 and was also
in
default on its CAMOFI convertible debt (See Note 6). These factors, among
others, raise substantial doubt about the Company's ability to continue as
a
going concern. The Company intends to fund operations through anticipated
increased sales 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,
2008. 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.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Going
Concern (continued)
The
consolidated financial statements do not include any adjustments to the carrying
amounts related to recoverability and classification of assets or the amount
and
classification of liabilities that might result should the Company be unable
to
continue as a going concern.
Concentrations
of Credit Risks
Cash
is
maintained at various financial institutions. The Federal Deposit Insurance
Corporation (“FDIC”) insures accounts at each financial institution for up to
$100,000. At times, cash may be in excess of the FDIC insured limit of $100,000.
The Company had approximately $313,000 of uninsured bank balances at December
31, 2007.
The
Company sells products to customers throughout the United States. The Company’s
ability to collect receivables is affected by economic fluctuations in the
geographic areas served by the Company. Although the Company does not obtain
collateral with which to secure its contract receivable, management periodically
reviews contracts receivable and assesses the financial strength of its
customers and, as a consequence, believes that the receivable credit risk
exposure could, at times, be material to the financial statements.
The
Company maintains an allowance for doubtful accounts for balances that appear
to
have specific collection issues. The collection process is based on the age
of
the invoice and requires attempted contacts with the customer at specified
intervals. If, after a specified number of days, the Company has been
unsuccessful in its collection efforts, a bad debt allowance is recorded for
the
balance in question. Delinquent accounts receivable are charged against the
allowance for doubtful accounts once uncollectibility has been determined.
The
factors considered in reaching this determination are the apparent financial
condition of the customer and the Company’s success in contacting and
negotiating with the customer. If the financial condition of the Company’s
customers were to deteriorate, resulting in an impairment of ability to make
payments, additional allowances may be required.
During
the year ended December 31, 2007, sales to three customers totaled approximated
36% of net sales. No other single customer had net sales of more than 10% of
total net sales for the year ended December 31, 2007. Management reviews the
collectibility of contracts receivables periodically and believes that the
allowance for doubtful accounts for the year ended December 31, 2007 is
$251,000.
Customer
|
|
%
of Net Sales
|
|
%
of Receivable
|
|
A
|
|
|
10
|
|
|
3
|
|
B
|
|
|
16
|
|
|
12
|
|
C
|
|
|
10
|
|
|
35
|
|
Total
|
|
|
36
|
|
|
50
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Risks
and Uncertainties
The
Company operates in an industry that is subject to intense competition. The
Company's operations are subject to significant risks and uncertainties
including financial, operational, technological and other risks associated
with
operating a business including the potential risk of business failure.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets
and
liabilities and the disclosure of contingent assets and liabilities at the
date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates made by management are,
among others, deferred tax asset valuation allowances, realization of
inventories, collectibility of contracts receivable and the estimation of costs
for long-term construction contracts. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid fixed income investments with maturities
of
three months or less at the time of purchase, to be cash equivalents. The
Company had no cash equivalents at December 31, 2007.
Inventories
Inventories
are stated at the lower of cost or net realizable value. Cost is determined
under the first-in, first-out method. Inventories represent cost of work in
process on units not yet under contract. Cost includes all direct material
and
labor, machinery, subcontractors and allocations of indirect overhead (see
table
below). Net realizable value is based on management's forecast for sales of
the
Company's products or services in the ensuing years. The industry in which
the
Company operates is characterized by technological advancement and change.
Should demand for the Company's products prove to be significantly less than
anticipated, the ultimate realizable value of the Company's inventories could
be
substantially less than the amount shown in the accompanying consolidated
balance sheet. At December 31, 2007, the Company had inventory reserves
approximating $286,000.
Inventory cost at
12/31/2007
(thousands)
|
|
Direct Labor
(thousands)
|
|
Direct Material
(thousands)
|
|
Subcontractors
(thousands)
|
|
Allocation of
Indirect Overhead
(thousands)
|
|
$
|
1,172
|
|
$
|
86
|
|
$
|
615
|
|
$
|
61
|
|
$
|
410
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Property
and Equipment
Property
and equipment are recorded at cost and are depreciated using the straight-line
method over the estimated useful lives of the related assets ranging from three
to five years. Equipment under capital lease obligations are depreciated over
the shorter of the estimated useful life or the term of the lease. Maintenance
and repairs are charged to expense as incurred. Significant renewals and
betterments are capitalized. At the time of retirement or other disposition
of
property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
consolidated statement of operations. For the years ended December 31, 2007
and
2006, the Company incurred depreciation expense of approximately $127,000 and
$147,000, respectively.
Long-Lived
Assets
The
Company accounts for long-lived asset impairments under Statement of Financial
Accounting Standards (“SFAS”) No. 144, “Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed
of.”
(“SFAS
No. 144”). SFAS No. 144 requires a three-step approach for recognizing and
measuring the impairment of assets to be held and used. The Company recognizes
impairment losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. The impairment loss
is measured by comparing the fair value of the asset to its carrying amount.
Fair value is estimated based on discounted future cash flows. Assets to be
sold
must be stated at the lower of the assets’ carrying amount or fair value and
depreciation is no longer recognized. The Company believes that no impairment
of
property and equipment exists at December 31, 2007.
Revenue
Recognition
The
Company's revenues consist primarly 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. The Company recognizes
revenue on contracts pursuant to SOP 81-1.
For
revenues from stock inventory the Company follows 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 Securities and
Exchange Committee.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
(continued)
For
contracts, the amount of revenue recognized at the reporting date is the portion
of the total contract price that the cost expended to date bears to the
anticipated final cost, based on current estimates of cost to complete. It
is
not related to the progress billings to customers. Contract costs include all
materials, direct labor, machinery, subcontract costs and allocations of
indirect overhead.
Because
contracts may extend over a period of time, changes in job performance, changes
in job conditions and revisions of estimates of cost and earnings during the
course of the work are reflected in the accounting period in which the facts
that require the revision become known. At the time a loss on a contract becomes
known, the entire amount of the estimated ultimate loss is recognized in the
consolidated financial statements.
Contracts
that are substantially complete are considered closed for consolidated financial
statement purposes. Costs incurred and revenue earned on contracts in progress
in excess of billings (under billings) are classified as a current asset.
Amounts billed in excess of costs and revenue earned (over billings) are
classified as a current liability.
In
accordance with SFAS No. 48, "Revenue
Recognition when Right of Return Exists,"
revenue
is recorded net of an estimate of markdowns, price concessions and warranty
costs. Such reserve is based on management's evaluation of historical
experience, current industry trends and estimated costs.
Shipping
and Handling Costs
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. Shipping and handling costs are classified as a component of cost
of
goods sold in the accompanying statements of operations.
Warranty
The
Company provides a warranty on certain products sold. Estimated future warranty
obligations related to certain products and services are provided by charges
to
operations in the period in which the related revenue is recognized. At December
31, 2007, the warranty obligation was immaterial to the accompanying
consolidated balance sheet.
Advertising
The
Company expenses the cost of advertising when incurred as selling expense in
the
accompanying consolidated statements of operations. Advertising expenses were
approximately $28,000 and $38,000 for the years ended December 31, 2007 and
2006, respectively.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Research
and Development Costs
Research
and development costs are expensed as incurred. During the years ended December
31, 2007 and 2006, the Company did not incur any research and development costs.
Income
Taxes
Income
taxes are accounted for in accordance with SFAS No. 109, Accounting
for Income Taxes
(“SFAS
109”). This statement requires the recognition of deferred tax assets and
liabilities to reflect the future tax consequences of events that have been
recognized in the Company’s financial statements or tax returns. Measurement of
the deferred items is based on enacted tax laws. In the event the future
consequences of differences between financial reporting bases and tax bases
of
the Company’s assets and liabilities result in a deferred tax asset,
SFAS 109 requires an evaluation of the probability of being able to realize
the future benefits indicated by such assets. A valuation allowance related
to a
deferred tax asset is recorded when it is more likely than not that some portion
or all of the deferred tax asset will not be realized. A full valuation
allowance for deferred tax assets has been provided at December 31, 2007
and 2006. The valuation allowance approximates $4,921,000 and $4,527,000 for
the
years ended December 31, 2007 and 2006, respectively. (See Note 7)
Basic
and Diluted Loss Per Common Share
Basic
net
earning (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted
net
income (loss) per share is computed by dividing net loss by the weighted average
number of common shares and dilutive common stock equivalents outstanding for
each respective year. Common stock equivalents, representing convertible
Preferred Stock, convertible debt, options and warrants totaling approximately
6,192,972 and 6,026,490 shares at December 31, 2007 and 2006 are not
included in the diluted loss per share as they would be anti-dilutive.
Accordingly, diluted and basic loss per common share are the same for 2007
and
2006.
Comprehensive
Income
In
June 1997, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 130, “Reporting Comprehensive Income” (“SFAS 130”). SFAS 130 requires
that total comprehensive income (loss) be disclosed with equal prominence
as net income (loss). The Company’s comprehensive net loss is equal to its net
loss for both years presented.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Segments
of Business
SFAS
131,
“Disclosures
about Segments of an Enterprise and Related Information,”
changes
the way public
companies report information about segments of their business in their quarterly
reports issued to stockholders. It also requires entity-wide disclosures about
the products and services an entity provides, the material countries in which
it
holds assets and reports revenues and its major customers. The Company currently
operates in one segment.
Stock
Based Compensation
Effective
January 1, 2006, we adopted the fair value method of accounting for employee
stock compensation cost pursuant to SFAS No. 123(R), Share-Based
Payments.
Prior
to that date, the Company used the intrinsic value method under Accounting
Policy Board Opinion No. 25 to recognize compensation cost.
Under
the
modified prospective method of adoption for SFAS No. 123-R, the compensation
cost recognized by the Company beginning January 1, 2006 includes compensation
cost for all equity incentive awards granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions
of SFAS No. 123-R. The Company had no equity incentive awards granted prior
to
January 1, 2006 that were not yet vested. Share-based compensation expense
of $316,800 and $43,200 was recognized in the accompanying consolidated
statements of operations for the years ended December 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.
On
November 13, 2006, the Company granted 2,000,000 options to key employees.
At
December 31, 2007, the Company had 1,050,000 options available for future
issuance under their equity compensation plans.
There
are
no effects of share-based compensation resulting from the application of SFAS
No. 123-R to options granted outside of the Company's Stock Option Plan for
the
year ended December 31, 2007 and 2006. Share-based compensation recognized
as a
result of the adoption of SFAS No. 123-R as well as pro forma disclosures
according to the original provisions of SFAS No. 123 for periods prior to the
adoption of SFAS No. 123-R use the Black Scholes option pricing model for
estimating fair value of options granted.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Stock
Based Compensation (continued)
In
accordance with SFAS No. 123-R, the Company’s policy is to adjust share-based
compensation on a quarterly basis for changes to the estimate of expected award
forfeitures based on actual forfeiture experience. The effect of adjusting
the
forfeiture rate for all expense amortization after December 31, 2007 is
recognized in the period the forfeiture estimate is changed.
At
December 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 December 31, 2007 was
not
applicable.
Options
outstanding that have vested and are expected to vest as of December 31, 2007
are as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Shares
|
|
Price
|
|
Term in Years
|
|
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
3,150,000
|
|
$
|
0.22
|
|
|
1.75
|
|
$
|
—
|
|
Expected
to vest (2)
|
|
|
800,000
|
|
$
|
0.15
|
|
|
0.40
|
|
$
|
—
|
|
Total
|
|
|
3,950,000
|
|
|
|
|
|
|
|
$
|
137,500
|
|
|
(1)
|
These
amounts represent the difference between the exercise price and $0.22,
the
closing market price of the Company's common stock on December 31,
2007 as
quoted on the Over-the-Counter Bulletin Board under the symbol "NCNC.OB"
for all in-the-money options
outstanding.
|
|
(2)
|
The
800,000 options are expected to become fully vested on March 14,
2008 and
are valued at $120,000 based on the stock market price of the shares
at
the contract date.
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Stock
Based Compensation (continued)
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
|
|
|
|
Weighted
|
|
Aggregate
|
|
|
|
Available
|
|
Number of
|
|
Average
|
|
Intrinsic
|
|
|
|
for Grant
|
|
Shares
|
|
Exercise Price
|
|
Value (1)
|
|
December
31, 2006
|
|
|
1,750,000
|
|
|
3,250,000
|
|
$
|
0.25
|
|
$
|
—
|
|
Grants
|
|
|
800,000
|
|
|
800,000
|
|
$
|
0.15
|
|
|
|
|
Exercises
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Cancellations
|
|
|
100,000
|
|
|
100,000
|
|
$
|
1.10
|
|
|
|
|
December
31, 2007
|
|
|
1,050,000
|
|
|
3,950,000
|
|
$
|
0.20
|
|
$
|
79,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2006
|
|
|
|
|
|
1,250,000
|
|
$
|
0.32
|
|
|
|
|
December
31,
2007
|
|
|
|
|
|
1,250,000
|
|
$
|
0.20
|
|
|
|
|
(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 December 31, 2007, the market price of
the
Company's common stock was $0.21 and $0.22, respectively).
The
Company follows SFAS No. 123 (R) (as interpreted by EITF Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued To Other Than Employees
for
Acquiring, or in Conjunction with Selling, Goods or Services") to account for
transactions involving services provided by third parties where the Company
issues equity instruments as part of the total consideration. Pursuant to
paragraph 7 of SFAS No. 123 (R), the Company accounts for such transactions
using the fair value of the consideration received (i.e. the value of the goods
or services) or the fair value of the equity instruments issued, whichever
is
more reliably measurable. The Company applies EITF Issue No. 96-18 in
transactions when the value of the goods and/or services are not readily
determinable the fair value of the equity instruments is more reliably
measurable and 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).
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
b)
For
transactions where the instruments are issued on a fully vested, non-forfeitable
basis, the equity instruments are valued on or about the date of the
contract.
c)
For
any transactions not meeting the criteria in (a) or (b) above, the Company
re-measures the consideration at each reporting date based on its then current
stock value.
Deferred
Financing Costs
Direct
costs of securing debt financing are capitalized and amortized over the term
of
the related debt. When a loan is paid in full, any unamortized financing costs
are removed from the related accounts and charged to operations. During the
years ended December 31, 2007 and 2006, the Company amortized approximately
$358,000 and $348,000, respectively, to interest expense.
Stock
Purchase Warrants Issued With Notes Payable
In
2006,
the Company granted warrants in connection with the issuance of certain notes
payable. Under Accounting Principles Board Opinion No. 14, "Accounting
for Convertible Debt and Debt Issued With Stock Purchase
Warrants,"
the
relative estimated fair value of such warrants represents a discount from the
face amount of the notes payable. Such discounts are amortized to interest
expense over the term of the notes.
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. During the years
ended
December 31, 2007 and 2006, the Company amortized approximately $1,352,000
and
$1,320,000, respectively, to interest expense.
Classification
Of Warrant Obligation
In
connection with the issuance of the 12% Senior Secured Convertible Notes
on
February 28, 2006 (See Note 6), the Company had an obligation to file
registration statements covering the Registrable Securities, as defined in
the
Registration Rights Agreement Amended. 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. The Registration Rights Agreement require the Company 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 and the warrants were
initially treated as liabilities.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Classification
Of Warrant Obligation (continued)
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 meet all the criteria outlined in EITF 00-19 to be classified as
equity. Accordingly, the warrants were reclassified to equity at December 19,
2006.
Fair
Value of Financial Instruments
Significant
Recent Accounting Pronouncements
In
September 2006, the FASB issued SFAS No.157, “Fair Value Measurements,” which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. SFAS No. 157 simplifies and codifies related guidance
within GAAP, but does not require any new fair value measurements. The guidance
in SFAS No. 157 applies to derivatives and other financial instruments measured
at estimated fair value under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” and related pronouncements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within
those fiscal years. Management does not expect the adoption of SFAS No. 157
to
have a significant effect on the Company’s financial position or results of
operation.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Significant
Recent Accounting Pronouncement (continued)
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 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.
In
December 2007, the FASB issued SFAS No. 141(R), Business
Combinations.
SFAS
No. 141(R) retains the fundamental requirements in SFAS No. 141, Business
Combinations,
that
the acquisition method of accounting be used for all business combinations
and
for an acquirer to be identified for each business combination. SFAS No. 141(R)
requires an acquirer to recognize the assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree at the acquisition date,
measured at their fair values as of that date, with limited exceptions specified
in SFAS No. 141(R). In addition, SFAS No. 141(R) requires acquisition costs
and
restructuring costs that the acquirer expected but was not obligated to incur
to
be recognized separately from the business combination, therefore, expensed
instead of part of the purchase price allocation. SFAS No. 141(R) will be
applied prospectively to business combinations for which the acquisition date
is
on or after the beginning of the first annual reporting period beginning on
or
after December 15, 2008. Early adoption is prohibited. The Company expects
to
adopt SFAS No. 141(R) to any business combinations with an acquisition date
on
or after January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment to ARB No.
51.
SFAS
No. 160 changes the accounting and reporting for minority interests, which
will
be recharacterized as noncontrolling interests and classified as a component
of
equity. SFAS No. 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. Early adoption
is
prohibited. The Company is currently evaluating the impact SFAS No. 160 may
have
on its consolidated financial statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force, or “EITF”), the AICPA, and the SEC did not or are not
believed by management to have a material impact on the Company’s present or
future consolidated financial statements.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
2.
CONTRACTS IN PROGRESS
Contracts
in progress at December 31, 2007, which include completed contracts not
completely billed, approximate:
Cumulative
costs to date
|
|
$
|
7,007,000
|
|
Cumulative
gross profit to date
|
|
|
7,893,000
|
|
|
|
|
|
|
Cumulative
revenue earned
|
|
|
14,900,000
|
|
Less
progress billings to date
|
|
|
(14,350,000
|
)
|
|
|
|
|
|
Net
under billings
|
|
$
|
550,000
|
|
The
following approximate amounts are included in the accompanying consolidated
balance sheet under these captions as of December 31, 2007:
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
$
|
571,000
|
|
|
|
|
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
(88,000
|
)
|
|
|
|
|
|
Net
under billings
|
|
$
|
483,000
|
|
3.
PROPERTY AND EQUIPMENT
Property
and equipment approximate the following at December 31, 2007:
|
|
|
|
Machinery
and equipment
|
|
$
|
907,000
|
|
Leased
vehicles
|
|
|
109,000
|
|
Computer
equipment
|
|
|
20,000
|
|
Furniture
and fixture
|
|
|
4,000
|
|
|
|
|
1,040,000
|
|
Less
accumulated depreciation and amortization
|
|
|
(771,000
|
)
|
|
|
|
|
|
|
|
$
|
269,000
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
4.
RELATED PARTY TRANSACTIONS
At
December 31, 2007, the Company had loans to two stockholders approximating
$545,000, including accrued interest. The loans accrue interest at 5% and are
due on demand. The Company has included the notes receivable from stockholders
in stockholders’ equity (deficit) as such amounts have not been repaid during
2007 or 2006. For each of the years ended December 31, 2007 and 2006, total
interest income from notes receivable from stockholders approximated $20,000.
5.
NOTES PAYABLE
During
the year ended December 31, 2001, the Company entered into a note payable with
a
third party for $215,000. The note accrued interest at a fixed rate of 15%
per
annum and matured in March 2002. The note was secured by certain assets of
the
Company, as defined, and was in default at December 31, 2004. During 2005,
the
Company and the note holder executed a mutual agreement to fully settle the
debt
whereby by the Company agreed to make fifteen monthly installments of $12,000
(totaling $180,000) beginning January 2006 and to issue 100,000 shares of
restricted common stock valued at $62,000 (estimated based on the market price
of the stock on the date of the agreement) to the holder. Accrued interest
on
the note totaled approximately $116,000 on the date of the transaction. As
a
result of the effective reduction in principal balance of $35,000, the
forgiveness of approximately $116,000 of accrued interest and the issuance
of
restricted common stock valued at $62,000, the Company recorded a gain on
forgiveness of notes payable totaling approximately $89,000 for the year ended
December 31, 2005. During the year ended December 31, 2006, the Company made
cash payments of $132,000 to reduce the principal balance on the secured note
payable. As of December 31 2006, the balance of the note was $48,000. During
the
year ended December 31, 2007, the Company made cash payments of $48,000 to
pay
off the principal balance on the secured note payable. As of December 31 2007,
there is no balance on the note.
On
April
17, 2007, the Company entered into a note payable agreement with a finance
company for the purchase of three vehicles. The note accrues interest at 8.49
%
per annum, and matures in April 2010. Monthly principal and interest payments
are $2,499. This note is secured by the three vehicles.
At
December 31, 2007, maturities of notes payable for the next five years are
as
follows for the years ending December 31
2008
|
|
$
|
25,597
|
|
2009
|
|
|
27,856
|
|
2010
|
|
|
9,804
|
|
|
|
|
|
|
Total
|
|
$
|
63,257
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
6.
CONVERTIBLE DEBT
Motivated
Minds Convertible Debt
On
February 15, 2006 the Company entered into a convertible note payable agreement
("Note A") with Motivated Minds, LLC (the "Holder") in the total amount of
$300,000. The principal balance, together with all accrued interest at the
rate
of 24% per annum for the first 30 days, and 27% for the following 60 days,
was
to become due on the earlier of a) May 16, 2006, or b) the date which the
Company obtains additional financing. Note A is convertible into shares of
the
Company's common stock at a fixed price of $0.66 at any time at the Holder's
option. In connection with Note A, the Company issued 30,000 shares of its
common stock and 454,545 warrants with a fixed exercise price of $0.63 to the
Holder.
The
warrants vested and became fully exercisable on the issuance date. In accordance
with EITF Issue No. 98-5 and Accounting Principles Board Opinion ("APB") No.
14,
the Company allocated the $300,000 debt proceeds between the relative fair
values of the warrants, the common shares issued and the fair value of the
beneficial conversion feature (BCF"). Pursuant to EITF Issue Nos. 98-5 and
00-27, the conversion feature of Note A provides for a rate of conversion that
is below market value. The resulting BCF and other debt discount on Note A
totaled $300,000 was amortized to interest expense over the life of the loan.
During 2006, amortization of the discount resulted in expense of $300,000,
which
is included in interest expense in the accompanying condensed consolidated
statement of operations for the year ended December 31, 2006.
Additionally,
due to the financing with CAMOFI (see below), Note A became due on February
28,
2006 and the Company issued 30,000 shares of common stock to the Holder to
extend the maturity date of Note A to May 16, 2006. Such shares were valued
at
approximately $18,900 (estimated to be the fair value based on the trading
price
on the issuance date). Accordingly, the Company recorded $18,900 in debt issue
discount and additional paid-in capital and is amortizing the debt discount
over
the remaining life of Note A. The entire amount was amortized during
2006.
In
connection with Note A, the Company issued 45,454 warrants and paid $30,000
in
cash to third parties as financing costs. The warrants were valued, using a
Black Scholes option pricing model, at $29,090. Accordingly, the Company
recorded deferred financing costs of $59,090 and additional paid-in capital
of
$29,090. The entire amount was amortized to interest expense in 2006, which
is
included in the accompanying condensed consolidated statements of
operations.
On
August
8, 2006, the Holder agreed to extend the maturity date of $150,000 of the note
balance to August 16, 2006 and the remaining $150,000 until October 16, 2006.
As
consideration for the extension, the Company issued 45,000 shares of restricted
common stock to the Holder. The shares were valued at $23,400 (based on the
price of the Company’s stock on the date of grant) which was recorded as
additional debt discount and amortized over the remaining life of the note.
The
amount was fully amortized during 2006. On August 16, 2006 the Company repaid
$150,000 of principal and all accrued interest to the Holder. The due date
on
the remaining $150,000 principal was extended through December 16, 2006 and
an
additional 30,000 restricted common stock valued at $6,000 (based on the stock
price on the date of grant) were granted to the Holder, which was also recorded
as additional debt discount and was fully amortized to interest expense during
the year ended December 31, 2006. On December 7, 2006, $50,000 of principal
was
repaid and the due date on
the
remaining $100,000 balance on Note was extended until January 31, 2007.
On
January 23, 2007, the balance of the note was paid in full.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
6.
CONVERTIBLE DEBT (continued)
Motivated
Minds Convertible Debt (continued)
In
connection with the Note A, the Company entered into a Registration Rights
Agreement dated February 16, 2006, pursuant to which the Company granted piggy
back registration rights to the Holder in connection with the shares issuable
upon conversion of the Note and issuable upon exercise of the
warrants.
CAMOFI
Convertible Debt
On
February 28, 2006, the Company entered into a Securities Purchase Agreement
(“Note B”) with CAMOFI Master, LDC (“CAMOFI”), whereby CAMOFI agreed to
purchase, up to $5,000,000 aggregate principal amount of 12% Senior Secured
Convertible Notes, due February 28, 2009 (up to $3,500,000 to be purchased
at
the closing and up to an additional $1,500,000 to be purchased pursuant to
an
Additional Investment Right), secured by a first priority lien on all assets
of
the Company and its current and future subsidiaries (including a pledge of
the
shares of the Company's current and future Subsidiaries). Note B is convertible
into 5,555,556 shares of the Company's common stock at a fixed price of $0.63
at
any time at CAMOFI’s option. In connection with Note B, the Company issued
3,476,190 warrants at an exercise price of $0.63 to CAMOFI that
expire on February 28, 2013.
The
warrants vested and became fully exercisable on the issuance date. In accordance
with EITF Issue No. 98-5 and APB No. 14, the Company allocated the $3,500,000
debt proceeds between the relative fair values of the warrants and the fair
value of the beneficial conversion feature (BCF”). Pursuant to EITF Issue Nos.
98-5 and 00-27, the conversion feature of Note B provides for a rate of
conversion that is below market value. The resulting BCF and other debt discount
resulting from the accounting for the warrants (see bellow) on Note B totaled
$3,500,000 and are being amortized on a straight-line basis to interest expense
over the life of the loan. As of December 31, 2007, approximately $1,352,000
was
amortized to interest expense. The
Company is currently in default on this loan. This loan is classified as a
current liability, and is due on demand.
Accounting
for the Warrants
Under
GAAP, accounting for certain warrants can be significantly affected by the
terms
of a registration rights penalty. In the CAMOFI debt financing transaction,
once
the registration statement required by the registration rights agreement (the
"Agreement") has been declared effective by the SEC, the Company's liability
for
the registration rights penalty will cease if, among other conditions described
in the agreement, the registration statement's effectiveness is maintained
for
the time period defined in the Agreement and the Company otherwise complies
with
SEC Rule 415 (which governs continuous offerings) during the time period set
forth in the Agreement. However, the Agreement limits the registration rights
penalty to a specific time period only when the continuing requirements of
the
agreement have been met, and it does not explicitly limit the maximum dollar
amount of any such penalty.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
6.
CONVERTIBLE DEBT (continued)
CAMOFI
Convertible Debt (continued)
Accounting
for the Warrants (continued)
Based
on
the preceding paragraph, the registration rights penalty could exceed the
difference between the fair value of a registered share of the Company's common
stock and the estimated fair value of an unregistered share. In addition, in
order for the warrants to be classified in equity it must meet all the criteria
outlined in EITF Issue No. 00-19, as a result of the original warrant agreement
the ability to register a company's securities was not within the issuer's
control, furthermore, since payment of a penalty in an indeterminate amount
is
considered an uneconomic settlement alternative, EITF Issue No. 00-19 requires
the Company to assume that the warrant will be net-cash settled even though
the
warrant agreement does not include any such provision. Therefore, the warrants
(which are an embedded derivative) were separated from the convertible debt
instrument, reported as a liability, and measured at estimated fair
value.
The
fair
value of the warrants in the debt financing transaction, based on the
Black-Scholes option-pricing model, was estimated at $2,190,000 on the
measurement date of February 28, 2006. Such amount was recorded as the
derivative warrant liability with a corresponding entry to debt discount against
the face of Note B. Such discount is being amortized to interest expense (using
the effective interest method) over the three-year term of the note. The Company
recorded interest expense on such discount of approximately $672,000 and
$608,000 during the years ended December 31, 2007 and 2006, respectively, in
the
accompanying consolidated statements of operations.
Reclassification
of the Warrant Obligation
On
December 19, 2006, the Company entered into an Amended and Restated Registration
Rights Agreement (the “Agreement”) with CAMOFI. Pursuant to the Amendment the
Company agreed to file registration statements to cover the resale of the shares
issuable upon conversion of the Note B and warrants as follows:
i)
on or
before January 31, prepare and file with the 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;
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
6.
CONVERTIBLE DEBT (continued)
Reclassification
of the Warrant Obligation (continued)
iii)
within 90 days from effectiveness of the Registration Statement referred to
in
ii) above, prepare and file a Registration Statement covering the resale of
all
common Stock issuable upon conversion of the 12% Senior Secured Convertible
Note
dated February 28, 2009 plus all shares of common stock underlying the Purchaser
Warrants to extent not registered above, up to 33% of our issued and outstanding
stock;
iv)
within 90 days from effectiveness of the Registration Statement referred to
in
iii) above, prepare and file a Registration Statement covering the resale of
all
additional Purchaser Warrants to extent not registered above, up to 33% of
our
issued and outstanding stock.
Pursuant
to the Agreement, CAMOFI agreed to waive all liquidated damages accrued prior
to
the date of the Agreement. However,
failure to meet the timetable set forth above will subject the Company 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 note.
As
a
result of the amended registration rights agreement and the limit of 10% placed
on the amount of liquidated damages to be paid if the Company does not have
an
effective registration statement in accordance with the amended registration
rights agreement, and since the warrant agreement provides the option of
settling the warrant obligation by issuing unregistered shares using a cashless
exercise feature in the event that there is no effective registration statement
within the required time period, the warrants met all the criteria outlined
in
EITF 00-19 to be classified as equity. Accordingly, on December 19, 2006, the
date of the amended agreement, the Company re-evaluated the estimated fair
value
of the warrant liability at approximately $626,000 using a Black Scholes option
pricing model. The decrease in fair value totaling approximately $1,500,000
was
recorded as a credit to derivative liability expense in the consolidated
statements of operations and the warrants were reclassified to additional
paid-in capital.
Other
Transactions
On
May 1,
2007, the Company entered into a second Amended and Restated Registration Rights
Agreement (the “Second Amended and Restated Agreement”) with CAMOFI. Pursuant to
Section 2 of the Second Amended and Restated Agreement, the Company agreed
to
file, in 30 days from the date thereof, a Registration Statement to register
up
to 33% of our issued and outstanding stock covering the resale of common stock
issuable upon conversion of the 12% Senior Secured Convertible Note dated
February 28, 2009, and to use the company’s best efforts to have the
registration statements mentioned above declared effective 90 days after the
date of filing. In addition, the Company agreed to use its best efforts to
keep
the registration statement continuously effective under the Securities Act
until
all the securities covered by such registration statement have been sold or
may
be sold without volume restriction pursuant to Rule 144(k). Pursuant to the
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 the Company 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 the company fails to pay any partial liquidated
damages within seven days after the date payable, the Company 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.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
6.
CONVERTIBLE DEBT (continued)
Other
Transactions (continued)
On
July
18, 2007, CAMOFI agreed to waive their right to require the Company to register
up to 33% of our issued and outstanding stock and consented to the inclusion
of
3,000,000 shares or 27% of the public float of the Company in this registration
statement. Therefore, the Company’s obligation pursuant to the Second Amended
and Restated Agreement and July 18, 2007 waiver, was to file one
registration statement to register up to 3,000,000 shares or 27% of the public
float of the Company’s common stock. During
November 2007, the Company filed an Amended Registration Statement which was
declared effective on November 14, 2007.
In
connection with the December 19, 2006 Amended and Restated Registration Rights
Agreement, the Company issued to CAMOFI warrants to purchase 1,500,000 shares
of
our common stock, at an exercise price of $0.35 for a term of seven
years. Per
EITF
96-18, Since the warrants are exercisable immediately, and the services (waiver
of liquidated damages accrued as a result of the Company’s failure to register
the warrants issued with the debt) were complete at the same time, the value
of
the services is deemed to be fair value of the warrants on the measurement
date,
which is the date of the transaction. The
warrants
were valued at $300,000, using a Black-Scholes option pricing model on the
dates
of grant and were recorded as interest expense in the Company’s consolidated
financial statements.
In
connection with the CAMOFI Note, the Company paid $393,000 in cash for financing
costs. Such amount was recorded as deferred financing costs and are being
amortized over the life of the note. In addition, the Company issued 722,539
warrants to Ascendiant Securities, LLC, (the “Placement Agent”) with an exercise
price of $0.63 and expire on February 28, 2013. The warrants were valued using
a
Black Scholes option pricing model at $455,200 and were recorded as deferred
financing costs and amortized to interest expense over the remaining life of
the
note. In connection with Note B, the Placement Agent also received 250,000
restricted shares of our common stock valued at $157,500 (based on the value
of
the Company’s stock at the date of grant) which were also recorded as deferred
financing costs and amortized to interest expense over the life of the note.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
6.
CONVERTIBLE DEBT (continued)
Other
Transactions (continued)
The
total
financing costs incurred in connection with Note B totaled approximately
$1,065,000, of which approximately $358,000 and $289,000 were amortized to
interest expense during the years ended December 31, 2007 and 2006,
respectively. The remaining deferred financing costs approximate $418,000 and
$776,000 at December 31, 2007 and 2006, respectively, of which approximately
$358,000 is current.
The
CAMOFI Note and corresponding warrants were offered and sold to CAMOFI in a
private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated thereunder. CAMOFI is an accredited investor as defined in Rule
501
of Regulation D promulgated under the Securities Act of 1933.
The
Conversion Option
SFAS
No.
133 states that a contract issued by an entity that is both (a) indexed to
its
own stock and (b) would be classified in stockholders' equity if it were a
freestanding financial instrument is not a derivative for purposes of that
pronouncement. Management has concluded that the CAMOFI debt financing
transaction's conversion option is "indexed to the Company's own stock" as
that
term is defined by EITF Issue No. 01-6, "The Meaning of Indexed to a Company's
Own Stock". In addition, since the debt financing transaction has been
determined to be a "conventional convertible debt instrument" as defined in
EITF
Issue No. 05-2, "The Meaning of "Conventional Convertible Debt Instrument"
in
Issue 00-19", the requirements of EITF Issue No. 00-19 do not apply. Lastly,
the
debt host contract is not a derivative in its entirety and (based on SFAS No.
133) the conversion option need not be bifurcated from such contract. Therefore,
the conversion option is not a derivative instrument as contemplated by EITF
Issue No. 00-19 or SFAS No. 133. As explained below, the Company has therefore
applied intrinsic value accounting to the BCF embedded in the conversion
option.
Intrinsic
Value Accounting for the BCF
As
explained in the following paragraph, the Company has accounted for the BCF
in
the CAMOFI debt financing transaction in accordance with EITF Issue No. 98-5,
EITF Issue No. 00-27, and APB No. 14. The excess of the proceeds over the
estimated fair value of the warrants (see "Accounting for the Warrants" below)
of approximately $1,310,000 was used to calculate the effective conversion
price
of $0.50 per share.
The
difference between the effective conversion price and the fair value of the
debt
at the commitment date of $0.236 per share resulted in a "theoretical"
beneficial conversion feature of approximately $2,190,000. Since the BCF cannot
exceed the proceeds allocated to the debt, the Company recorded a debt issuance
discount on Note B of $1,310,000 which is being amortized to interest expense
(using the effective interest method) over the three-year term of the note.
The
Company recorded interest expense on such BCF of approximately $402,000 and
$364,000 during the year ended December 31, 2007 and 2006, respectively, in
the
accompanying consolidated statements of operations.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
6.
CONVERTIBLE DEBT (continued)
Total
Debt Discounts
The
remaining BCF and debt discount balances on Note B associated with the
conversion option of the debt and the warrants, respectively, totaled
approximately $1,175,000 at December 31, 2007 and is presented net of the
$2,217,000 principal balance of Note B in the consolidated balance
sheet.
7.
INCOME TAXES
During
2007 and 2006, the provision for taxes differs from the amounts computed by
applying the U.S. Federal income tax rate of 34% to income before provision
for
taxes as a result of the following:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Computed
“expected” tax (benefit) expense
|
|
$
|
(1,146,000
|
)
|
$
|
(367,000
|
)
|
|
|
|
|
|
|
|
|
Addition
to (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
State
income taxes, net of federal benefit
|
|
|
(183,000
|
)
|
|
(65,000
|
)
|
Change
in deferred tax asset valuation allowance
|
|
|
1,222,000
|
|
|
416,000
|
|
Non-deductible
expenses
|
|
|
108,600
|
|
|
16,800
|
|
|
|
|
|
|
|
|
|
|
|
$
|
108,600
|
|
$
|
800
|
|
The
effects of temporary differences that give rise to significant portions of
deferred tax assets and liabilities at December 31, 2007 and 2006 are presented
below:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Tax
net operating loss carryforwards
|
|
$
|
5,728,000
|
|
$
|
4,600,000
|
|
Warrant
liability
|
|
|
(598,000
|
)
|
|
(584,000
|
)
|
|
|
|
|
|
|
|
|
Accrued
inventory reserve
|
|
|
114,000
|
|
|
114,000
|
|
Accrued
expenses
|
|
|
141,000
|
|
|
397,000
|
|
|
|
|
|
|
|
|
|
Total
gross deferred tax asset
|
|
|
4,921,000
|
|
|
4,527,000
|
|
Less
valuation allowance
|
|
|
(4,921,000
|
)
|
|
(4,527,000
|
)
|
|
|
|
|
|
|
|
|
Total
net deferred tax asset
|
|
$
|
–
|
|
$
|
–
|
|
Based
upon the Company’s history of continuing operating losses, realization of its
deferred tax assets does not meet the “more likely than not” criteria under SFAS
No. 109 and, accordingly, a valuation allowance for the entire deferred tax
asset amount has been recorded.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
7.
INCOME TAXES (continued)
The
valuation allowance increased by $858,000 and $387,000 during the years ended
December 31, 2007 and 2006, respectively. The current provision for income
taxes
for the years ended December 31, 2007 and 2006 is not significant and due
primarily to certain state taxes.
At
December 31, 2007, the Company had net tax operating loss carryforwards for
federal and state income tax purpose of approximately $15.4 million and $8.0
million, respectively, available to offset future taxable federal and state
income. If not utilized to offset future taxable income, the federal and state
carryforwards will expire in various years through 2026 and 2015, respectively.
In the event the Company were to experience a greater than 50% change in
ownership as defined in Section 382 of the Internal Revenue Code, the
utilization of the Company’s tax net operating loss carryforwards could be
severely restricted.
On
January 1, 2007, the Company adopted the provisions of FIN 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109, Accounting for Income Taxes.
FIN 48
clarifies the accounting for uncertainty in income taxes recognized in the
entity’s financial statements in accordance with SFAS No. 109. The adoption of
FIN 48 did not result in a cumulative effect adjustment to the Company’s
retained earnings. As of the date of adoption, the Company had no unrecognized
income tax benefits. Accordingly, the annual effective tax rate was not affected
by the adoption of FIN 48. Should
the Company incur interest and penalties relating to tax uncertainties, such
amounts would be classified as a component of interest expense and operating
expense, respectively.
At
December 31, 2007, the Company had no increase or decrease in unrecognized
income tax benefits for the year. There was no accrued interest or penalties
relating to tax uncertainties at December 31, 2007. Furthermore,
there were no adjustments to the liability or lapse of statute of limitation
or
settlements with taxing authorities.
The
Company expects resolution of unrecognized tax benefits, if created, would
occur
while the full valuation allowance of deferred tax assets is maintained,
therefore, the Company does not expect to have any unrecognized tax benefits
that, if recognized, that would affect the effective tax rate.
The
Company is subject to income tax in the U.S. federal jurisdiction and California
state jurisdictions and has identified its federal and California tax returns
below as “major” tax filings. These jurisdictions, along with the years still
open to audit under the applicable statutes of limitation, are as follows:
Jurisdiction
|
|
Tax Years
|
|
|
|
|
|
Federal
|
|
2004
– 2006 |
|
California
|
|
2003
– 2006 |
|
However,
because the Company had net operating losses and credits carried forward in
both
of the jurisdictions, certain items attributable to closed tax years are still
subject to adjustment by applicable taxing authorities through an adjustment
to
tax attributes carried forward to open years.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
8.
EQUITY TRANSACTIONS
Preferred
Stock
The
Company has authorized 15,000,000 shares of cumulative, convertible Series
B
Preferred Stock (“Series B”) with a par value of $1 per share. The Series B has
a mandatory cumulative dividend of $1.25 per share, which is payable on a
semi-annual basis, and convertible into 1.67 shares of the Company’s common
stock, does not have any voting rights, and has liquidation preference equal
to
$25 per share before any payment or distribution shall be made on common stock.
In
March
2002, the Board of Directors authorized 75,000 shares of 5% cumulative,
convertible Series C Preferred Stock (“Series C”) with a par value of $1 per
share. The Series C has a mandatory cumulative dividend of $1.25 per share,
which is payable on a semi-annual basis in June and December each year to
holders of record on November 30 and May 31, does not have any voting rights
and
has liquidation preferences, as defined. Each share of Series C is convertible
at the option of the holder into 16.667 shares of the Company’s common
stock.
During
the years ended December 31, 2007 and 2006, the Company issued 15,000 and 20,000
shares of restricted common stock, respectively, upon conversion of 900 and
1,200 shares of Series C, respectively, at a conversion rate of
16.667-to-1.
In
March
2006, some of the Company’s preferred shareholders elected to waive their rights
to receive dividends. Accordingly, the Company recorded a reduction in dividends
payable of $282,875.
At
December 31, 2006, the Company had a total of 27,780 shares of Series C issued
and outstanding with accumulated dividends totaling approximately $238,000.
At
December 31, 2007, the Company had a total of 26,880 shares of Series C issued
and outstanding with accumulated dividends totaling approximately $225,000,
which is included in dividends payable in the consolidated balance sheet.
During
the year ended December 31, 2004, the Company issued a Private Placement
Memorandum (“PPM”) in which the Company offered to eligible investors, as
defined, a maximum of 30,000 shares of Series D Preferred Stock (“Series D”),
with a required minimum offering of 1,000 shares of Series D to be sold at
$25
per share. During the year ended December 31, 2004 and pursuant to the PPM,
the
Company issued 23,640 shares of Series D to eligible investors for proceeds
totaling $521,000, net of $30,000 paid to the broker/dealer and $40,000 of
accounts payable which were exchanged for shares. Such offering costs were
included as an offset to additional paid-in capital in the accompanying
consolidated financial statements. Since the related conversion rate is 50:1,
the effective conversion rate of $0.50 resulted in a deemed dividend of
$153,660, which was included in accumulated deficit. The deemed dividend is
also
reflected as an increase in the net loss attributable to common shareholders
for
2004 (see Note 8). Additionally, the broker/dealer was granted Three-Year
Placement Warrants, as defined in the PPM, with a cashless exercise feature
to
purchase 25,000 shares of the Company’s common stock at prices ranging from
$0.50 to $1.00. No expense was recorded related to the granting of such warrants
as they were considered an offering cost. The warrants vested immediately and
expired in February 2007.
On
August
25, 2005, two of preferred shareholders elected to convert 12,000 preferred
stock into 600,000 shares of Company’s common stock.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
8.
EQUITY TRANSACTIONS (continued)
Preferred
Stock (continued)
In
March
2006, one of the Company’s preferred series D shareholders elected to waive
their rights to receive dividends. Therefore, the Company recorded a reduction
in dividends payable of $5,000.
At
December 31, 2006, the Company had a total of 11,640 shares of Series D issued
and outstanding, with accumulated dividends totaling approximately
$125,000.
At
December 31, 2007, the Company had a total of 11,640 shares of Series D issued
and outstanding, with accumulated dividends totaling approximately $151,000,
which is included in dividends payable in the consolidated balance
sheet.
Common
Stock
Issuance
Of Stock For Services Valued in
accordance with the EITF 96-18
In
December 2007, the Company entered into a three month contract with a third
party for corporate consulting and marketing services valued at $180,000. The
fee was paid as follows: $30,000 in cash, 300,000 shares of the Company’s common
stock valued at $45,000 based on the stock market price of the shares at the
contract date, and 700,000 options valued at $105,000 using the Black-Scholes
option-pricing model to purchase the Company’s common shares. The value of the
common stock and options issued on the date of the transaction were recorded
as
a deferred charge and is amortized to operating expense over the life of the
agreement. At December 31, 2007, the remaining deferred consulting fees under
this contract totaled $125,000.
In
June
2007, the Company entered into a three year contract with a third party for
internet public investor relations services valued at $210,000. The fee was
paid
in the form of 300,000 shares of Company’s common stock and valued based on the
stock market price of the shares at the contract date. The value of the common
stock on the date of the transaction was recorded as a deferred charge and
is
amortized to operating expense over the life of the agreement. At December
31,
2007, the remaining deferred consulting fees under this contract totaled
$169,171.
In
June
2007, the Company entered into a ninety day contract with a third party for
public investor relations services valued at $10,500. The fee was paid in the
form of 15,000 shares of the Company’s common stock and valued based on the
stock market price of the shares at the contract date. The value of the common
stock on the date of the transaction was recorded as a deferred charge and
was
amortized to operating expense over the life of the agreement. The consulting
fees under this contract were amortized to expense during the year.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
8.
EQUITY TRANSACTIONS (continued)
Common
Stock (continued)
Issuance
Of Stock For Services Valued in accordance with the EITF 96-18
(continued)
In
June
2007, the Company entered into a six month contract with a third party for
corporate consulting and marketing services valued at $52,500. The fee was
paid
in the form of 75,000 shares of the Company’s common stock based on the
stock market price of the shares at the contract date. The value of the common
stock on the date of the transaction was recorded as a deferred charge and
was
amortized to operating expense over the life of the agreement. The consulting
fees under this contract were amortized to expense during the year.
In
July
2006, the Company issued 100,000 shares of common stock valued at $41,000 (based
on the market price of the shares on the date the services were completed)
to a
third party for corporate finance and investor relations services under one
month contract. The amount was recorded as consulting expense during the year
ended December 31, 2006.
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. As described in Note 1, in accordance with the EITF 96-18, the value
of this services are not readily determinable and the fair value of the equity
instruments is more reliably measurable. Under this 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 year ended December 31, 2007, the Company recorded
net
decreases to the fair values of such equity based compensation arrangements
of
approximately $12,000. At December 31, 2007, the remaining deferred consulting
fees under this contract totaled $8,250.
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. The fee was recorded as public company
expense in the first quarter of 2007 in the consolidated statements of
operations.
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. The fee was recorded as public
company expense in the first quarter of 2007 in the consolidated statements
of
operations.
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. The fee was recorded as public company
expense in the first quarter of 2007 in the consolidated statements of
operations.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
8.
EQUITY TRANSACTIONS (continued)
Common
Stock (continued)
Issuance
Of Stock For Services Valued in accordance with the EITF 96-18
(continued)
In
December 2006, the Company issued 150,000 shares of common stock valued at
$28,500 (based on the market price of the shares on the date of grant) to a
third party for public relations consulting services. In accordance with EITF
96-18, the Company revalued the transaction at December 31, 2006 and adjusted
the fees to $31,500. The additional $3,000 difference was recorded as deferred
consulting fees and was being amortized over the remaining term of the
contract.
Other
Issuances
On
June
29, 2007, the Company issued 675,000 shares of common stock in connection with
Note B as penalties on defaulted secured convertible note.
On
May
15, 2006, the Company issued 10,227 shares of common stock for conversion of
$6,750 of interest due on Note A. The common stock conversion price was $0.66
in
accordance with the terms of Note A.
On
April
25, 2006, the Company issued 9,091 shares of common stock for conversion of
$6,000 of interest due on Note A. The common stock conversion price was $0.66
in
accordance with the terms of Note A.
On
March
7, 2006 the
Company issued 250,000 shares of common stock to a third party as financing
fees
in connection with Note B. The shares were valued at $157,500 (based on the
estimated fair value of the common stock on the date of the transaction ) and
recorded as deferred financing costs and amortized to interest expense over
the
life of the note. During 2006 and 2007, the Company amortized to interest
expense an amount of $43,750 and $52,500, respectively. As of December 31,
2007,
a balance of $61,250 remained to be amortized.
During
March 2006, the Company issued 250,000 shares of restricted common stock and
paid $900,000 in cash to one of its creditors to settle $750,000 outstanding
principal balance and $291,050 accrued interest on two defaulted notes payable.
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.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
8.
EQUITY TRANSACTIONS (continued)
Common
Stock (continued)
Other
Issuances (continued)
During
the year ended December 31, 2002, the Company received two subscriptions
receivable totaling $375,000 in exchange for 250,000 restricted shares of common
stock. The receivables bear interest at an annual rate of 5%.
Principal and any unpaid interest on both subscriptions receivable were
due
on August 22, 2003, and are in default as of December 31, 2007. The related
accrued interest receivable and interest income are insignificant to the
consolidated financial statements.
During
the year ended December 31, 2001, the Company received a subscription receivable
of $87,500 from a member of the Board of Directors in exchange for shares of
the
Company’s restricted common stock. The subscription receivable bears interest at
an annual rate of 6%. Principal and any unpaid interest were due on October
6,
2001. As of December 31, 2007, the subscription receivable remains unpaid.
The
related accrued interest receivable and interest income are insignificant to
the
consolidated financial statements.
Stock
Options and Warrants
Under
the
terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase
an aggregate of 5,000,000 shares of common stock may be issued to key employees,
as defined. The exercise price of any option may not be less than the fair
market value of the shares on the date of grant. No options granted may be
exercisable more than 10 years after the date of grant. The options granted
generally vest evenly over a one-year period, beginning from the date of grant.
Under
the
terms of the Company's non-statutory stock option plan ("NSSO"), options to
purchase an
aggregate of 1,350,000 shares of common stock may be issued to non-employees
for
services rendered. These options are non-assignable and non-transferable, are
exercisable over a five-year period from the date of grant, and vest on the
date
of grant.
During
the year ended December 31, 2007, the Company granted 800,000 options valued
at
$120,000 (using the Black-Scholes option pricing model) to third parties for
corporate consulting and marketing services under three month contract. The
value of the common stock and options issued on the date of the transaction
were
recorded as a deferred charge and is amortized to operating expense over the
life of the agreement. At December 31, 2007, the remaining deferred consulting
fees under this contract totaled $100,000.
During
the year ended December 31, 2006, the Company granted 2,000,000 incentive stock
options to certain employees under the Company’s ISOP. The options have an
exercise price of $0.20 and vested on December 1, 2007. Also, the Company
granted 6,403,728 warrants to certain note holders, its assignee and placement
agents, in connection with issuance of two convertible notes.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
8.
EQUITY TRANSACTIONS(continued)
Stock
Options and Warrants (continued)
The
following is a status of the stock options outstanding at December 31, 2007
and
2006 and the changes during the two years then ended:
|
|
Year Ended
|
|
Year Ended
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Options
|
|
Average Price
|
|
Options
|
|
Average Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
|
|
3,250,000
|
|
$
|
0.25
|
|
|
1,483,250
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
800,000
|
* |
|
0.15
|
|
|
2,000,000
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Terminated
|
|
|
(100,000
|
)
|
|
(1.10
|
)
|
|
(163,500
|
)
|
|
(0.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
end of year
|
|
$
|
3,950,000
|
|
$
|
0.20
|
|
$
|
3,250,000
|
|
$
|
0.25
|
|
*
the
options were granted on 12/14/2007, two year term, vesting 1/3 per month for
a
period of three months, and are not issued under the
Company’s approved ISOP.
The
weighted average grant-date fair falue of the options granted was $0.18. The
fair value of each share-based award is estimated on the grant date using the
Black Scholes option-pricing formula. Expected volatilities are based on
the implied volatility of the Company’s stock price (328%). The risk-free
rate for periods within the contractual life of the option is based on the
U.S.
Treasury interest rates in effect at the time of grant (4.60%). All of the
options granted during the year have an expected term of 5 years.
The
following table summarizes information related to stock options outstanding
at
December 31, 2007:
|
|
Options Outstanding
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Number of
|
|
Remaining
|
|
Average
|
|
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
Exercise Price
|
|
Outstanding
|
|
Life (Years)
|
|
Price
|
|
|
|
|
|
|
|
|
|
$0.15
|
|
|
800,000
|
|
|
0.40
|
|
$
|
0.15
|
|
$0.20
|
|
|
2,000,000
|
|
|
1.96
|
|
|
0.20
|
|
$0.25
|
|
|
1,150,000
|
|
|
0.20
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,950,000
|
|
|
|
|
$
|
0.20
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
8.
EQUITY TRANSACTIONS(continued)
Stock
Options and Warrants (continued)
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.
The
following is a status of the warrants outstanding at December 31, 2007 and
2006,
and the changes during the two years then ended:
|
|
Year Ended
|
|
Year Ended
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Warrants
|
|
Average Price
|
|
Warrants
|
|
Average Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
|
|
6,403,728
|
|
$
|
0.57
|
|
|
55,000
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
6,371,455
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Terminated
|
|
|
(25,000
|
)
|
|
(0.65
|
)
|
|
(22,727
|
)
|
|
(0.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable, end of year
|
|
|
6,378,728
|
|
$
|
0.57
|
|
|
6,403,728
|
|
$
|
0.57
|
|
The
following table summarizes information related to warrants outstanding at
December 31, 2007:
|
|
Warrants Outstanding
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Number of
|
|
Remaining
|
|
Average
|
|
|
|
Warrants
|
|
Contractual
|
|
Exercise
|
|
Exercise Price
|
|
Outstanding
|
|
Life (Years)
|
|
Price
|
|
|
|
|
|
|
|
|
|
$0.35
|
|
|
1,500,000
|
|
|
1.40
|
|
$
|
0.35
|
|
$0.50-0.75
|
|
|
4,848,728
|
|
|
2.30
|
|
|
0.63
|
|
$1.00-1.25
|
|
|
30,000
|
|
|
0.00
|
|
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,378,728
|
|
|
|
|
$
|
0.57
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
8.
EQUITY TRANSACTIONS(continued)
Stock
Options and Warrants (continued)
The
following table summarizes information related to stock options and warrants
outstanding at December 31, 2007:
|
|
|
|
Number Of Securities
|
|
|
|
|
|
Remaining Available
|
|
|
|
Equity Compensation Plan Information
|
|
For Future Issuance
|
|
|
|
Number Of Securities To Be
|
|
Weighted-Average
|
|
Under Equity
|
|
|
|
Issued Upon Exercise Of
|
|
Exercise Price Of
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
(Excluding Securities
|
|
|
|
Warrants And Rights
|
|
Warrants And Rights
|
|
In Column(A))
|
|
|
|
(A)
|
|
(B)
|
|
(C)
|
|
Equity
compensation plans approved by security holders
|
|
|
3,150,000
|
|
|
0.22
|
|
|
1,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
7,178,728
|
|
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,328,728
|
|
|
—
|
|
|
1,850,000
|
|
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
9.
LOSS PER SHARE
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations for the years ended December 31,
2007 and 2006:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,410,526
|
)
|
$
|
(1,051,744
|
)
|
|
|
|
|
|
|
|
|
Cumulative
preferred dividends (See Note 8)
|
|
|
(83,675
|
)
|
|
(84,800
|
)
|
|
|
|
|
|
|
|
|
Waived
Cumulative preferred dividends (See Note 8)
|
|
|
69,750
|
|
|
287,875
|
|
|
|
|
|
|
|
|
|
Numerator
for basic and diluted loss per common share:
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
|
(3,424,451
|
)
|
|
(848,669
|
)
|
|
|
|
|
|
|
|
|
Denominator
for basic loss per share:
|
|
|
|
|
|
|
|
Weighted
average
shares
|
|
|
12,886,382
|
|
|
11,332,289
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted loss per share:
|
|
|
|
|
|
|
|
Weighted
average
shares
|
|
|
12,886,382
|
|
|
11,332,289
|
|
|
|
|
|
|
|
|
|
Basic
loss per share
|
|
$
|
(0.27
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Diluted
loss per share
|
|
$
|
(0.27
|
)
|
$
|
(0.07
|
)
|
10.
COMMITMENTS AND CONTINGENCIES
Service
Agreements
Periodically,
the Company enters into various agreements for services including, but not
limited to, public relations, financial consulting and manufacturing consulting.
Generally, the agreements are ongoing until such time they are terminated,
as
defined. Compensation for services is paid either at a fixed monthly rate or
based on a percentage, as specified, and may be payable in shares of the
Company’s common stock. The Company's policy is that expenses related to these
types of agreements are valued at the fair market value of the services or
the
shares granted, whichever is more realistically determinable. Such expenses
are
amortized over the period of service.
Leases
The
Company leases its office and warehouse facility under a non-cancelable
operating lease agreement. The lease requires monthly lease payments of $30,000.
The lease expires on February 28, 2009 and has an option to
purchase.
The
Company leased its office and warehouse facility under a lease agreement which
ended in December 31, 2007. The lease required monthly lease payments of
approximately $33,000, with annual increases of 3% through December
2007.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
10.
COMMITMENTS AND CONTINGENCIES (continued)
Rental
expense for operating leases approximated $450,000 and $410,000 for the years
ended December 31, 2007 and 2006, respectively; which are included in selling,
general and administrative in the accompanying consolidated of
operations.
Legal
From
time
to time, the Company may be involved in various claims, lawsuits, and disputes
with third parties, actions involving allegations or discrimination or breach
of
contract actions incidental in the normal operations of the business. The
Company is not currently involved in any such litigation, which management
believes could have a material adverse effect on its financial position or
result of operations.
The
Company is currently negotiating with CAMOFI to settle its debt obligation.
Interest and penalties accrued through December 31, 2007 approximate $986,000.
Backlog
(Unaudited)
The
following schedule approximates a reconciliation of the backlog representing
signed contracts:
Balance,
January 1, 2007
|
|
$
|
3,595,000
|
|
New
contracts, January 1, 2007 through December 31, 2007
|
|
|
8,151,000
|
|
|
|
|
11,746,000
|
|
Less,
contract revenue earned – January 1, 2007 through December 31,
2007
|
|
|
(6,990,000
|
)
|
|
|
|
|
|
Balance
December 31, 2007
|
|
$
|
4,756,000
|
|
11.
SUBSEQUENT EVENTS
On
February 8, 2008, the Company entered in to a one year lease agreement to
rent 38,000 sq.ft. commercial building in Santa Fe Springs, CA. The lease has
an
option purchase clause.
On
February 8, 2008, the Company engaged a consultant to provide public relations
services. The Company issued 150,000 restricted shares of common stock in
connection with the agreement.
On
February 22, 2008, the Company engaged a consultant to provide public and
financial communication services. The Company issued 100,000 restricted shares
of common stock in connection with the agreement.
NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
11.
SUBSEQUENT EVENTS (continued)
On
March
25, 2008, the Company engaged a consultant to provide financial services. The
Company issued 125,000 restricted shares of common stock in connection with
the
agreement.