UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2008March 31, 2009
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
 
Commission file number: 000-09459
 
NEW CENTURY COMPANIES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
061034587
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
9835 Romandel Ave.
Santa Fe Springs, CA 90670
 (Address of principal executive offices)
 
(562) 906-8455
(Registrant’s telephone number, including area code)
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Accelerated filer
Non-accelerated filer
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o¨  No x
 
As of August 12, 2008,May 18, 2009, the Company had 15,344,65615,344,654 shares of common stock, $0.10 par value, issued and outstanding.
  
Documents incorporated by reference: None



NEW CENTURY COMPANIES, INC.

INDEX

  
Page No.
PART I - FINANCIAL INFORMATION
  
   
Item 1. Financial Statements F-1
   
Condensed Consolidated Balance Sheets -
June 30, 2008 March 31, 2009 (Unaudited) and December 31, 20072008 F-1
   
Condensed Consolidated Statements of Operations (Unaudited) -  
Three and Six Months Ended June 30,March 31, 2009 and 2008 and 2007 F-2
   
Condensed Consolidated Statements of Cash Flows (Unaudited) -  
SixThree Months Ended June 30,March 31, 2009 and 2008 and 2007 F-3
   
Notes to Condensed Consolidated Financial Statements F-4
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 79
   
Item 4T. Controls and Procedures 
7
9
   
PART II - OTHER INFORMATION
  
   
Item 1. Legal Proceedings 11
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 
11
   
Item 3. Defaults Upon Senior Securities 
11
   
Item 4. Submission of Matters to a Vote of Security Holders 
11
   
Item 5. Other Information 
11
   
Item 6. Exhibits 
11
   
SIGNATURES 
12



Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains certain 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. For example, statements regarding the Company’s financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about future product demand, supply, manufacturing, costs, marketing and pricing factors are all forward-looking statements. These statements are generally accompanied by words such as “intend,” anticipate,” “believe,” “estimate,” “potential(ly),” “continue,” “forecast,” “predict,” “plan,” “may,” “will,” “could,” “would,” “should,” “expect” or the negative of such terms or other comparable terminology. The Company believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, based on information available to it on the date hereof, but the Company cannot provide assurances that these assumptions and expectations will prove to have been correct or that the Company will take any action that the Company may presently be planning. However, these forward-looking statements are inherently subject to known and unknown risks and uncertainties. Actual results or experience may differ materially from those expected or anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, regulatory policies, available cash, research results, competition from other similar businesses, and market and general economic factors. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.


 
Part I - Financial Information

ITEM 1.  FINANCIAL STATEMENTS


NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

ITEM 1. FINANCIAL STATEMENTS

 
June 30, 2008
 
December 31,
  (Unaudited)    
 
2008
 
2007
  March 31,  December 31, 
 
(unaudited)
    2009  2008 
ASSETS
     ASSETS    
      
Current Assets
           
Cash  -  281,729  $268,082  $31,889 
Contract receivables, net  390,900  438,876  334,391  237,787 
Inventories, net  653,730  886,107  412,889  564,022 
Costs and estimated earnings in excess of billings on uncompleted contracts  435,434  570,797  15,551  416,664 
Deferred financing costs, current portion  139,178  358,292 
Deferred financing costs 262,183  252,305 
Prepaid expenses and other current assets  278,599  14,183   165,933   168,668 
               
Total current assets  1,897,841  2,549,984  1,459,029  1,671,335 
               
Property and Equipment, net
  227,860  269,092  172,877  186,906 
Deferred financing costs, long-term portion
  206,331  59,715 
Deferred Financing Costs, net  173,803   233,702 
        
Total Assets $2,332,032 $2,878,791  $1,805,709  $2,091,943 
               
LIABILITIES AND STOCKHOLDERS' DEFICIT
       
LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIES AND STOCKHOLDERS' EQUITY     
               
Current Liabilities
               
Bank Overdraft $66,627 $18,962  $32,152  $15,329 
Accounts payable and accrued liabilities  1,055,107  2,074,666  1,625,005  1,417,464 
Dividends payable  418,000  376,725  459,275  459,275 
Billings in excess of costs and estimated earnings on uncompleted contracts  329,038  88,025  823,478  1,388,348 
Capital lease obligation, current portion  26,703  25,597 
Deferred Gain on forgiveness of debt  554,218  - 
Convertible (2007 only) notes payable, net of discount of $319,133       
at June 30, 2008 and $1,175,504 for December 31, 2007, current portion  149,324  1,391,163 
Capital lease obligation, net of current portion 28,542  27,874 
Derivative liability 4,885,000  1,975,298 
CAMOFI Convertible note payable, net of discount of $1,756,611 at March 31, 2009 and        
$2,089,443 at December 31, 2008, respectively 1,070,669  737,838 
CAMHZN Convertible note payable, net of discount of $294,812 at March 31, 2009 and        
$350,090 at December 31, 2008, respectively 455,188  399,910 
CAMOFI Convertible Note, net of discount of $248,439 452,761  - 
CAMHZN Convertible Note, net of discount of $61,577  112,223   - 
               
Total current liabilities  2,599,017  3,975,138   9,912,229   6,414,272 
               
Long Term Liabilities
               
Capital lease obligation, long-term portion  19,750  37,679 
Deferred Gain on forgiveness of debt  600,402  - 
Convertible (2007 only) notes payable, net of discount of $345,728       
for June 30, 2008 and $0 for December 31, 2007, long-term portion  2,135,815  - 
Capital lease obligation, long term portion  2,482   9,804 
               
Total long term liabilities  2,755,967  37,679 
Total liabilities  9,914,711   6,424,076 
               
Commitments and Contingencies
               
               
Stockholders' Deficit
       
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  26,880  26,880  26,880 
Cumulative, convertible, Series D preferred stock, $25 par value,               
75,000 shares authorized, 11,640 shares issued and outstanding               
(liquidation preference of $416,000)  291,000  291,000  291,000  291,000 
Common stock, $0.10 par value, 50,000,000 shares authorized;               
15,344,656 and 13,744,654 shares issued and outstanding       
at March 31, 2008 and December 31, 2008, respectivelly  1,534,466  1,374,466 
Subscriptions receivable  (462,500) (462,500)
15,344,654 shares issued and outstanding        
at March 31, 2009 and December 31, 2008 1,534,466  1,534,466 
Notes receivable from stockholders  (545,165) (545,165) (564,928) (564,928)
Deferred consulting fees  (166,756) (334,921)
Deferred equity compensation (81,667) (101,667)
Additional paid-in capital  9,397,195  9,748,781  7,355,007  7,355,007 
Accumulated deficit  (13,098,072) (11,232,567)  (16,701,824)  (12,879,955)
               
Total stockholders' deficit  (3,022,952) (1,134,026)
Total stockholders' equity  (8,141,066)  (4,339,197)
               
Total liabilities and stockholders' deficit $2,332,032  2,878,791 
Total Liabilities and Stockholders' equity $1,805,709  $2,091,943 
 -  - 

See accompanying notes to the condensed consolidated financial statements.
 

 

NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30,March 31, 2009 and 2008 and 2007
(Unaudited)

  
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
  
2008
 
2007
 
2008
 
2007
 
          
          
CONTRACT REVENUES
 $1,434,676 $2,600,147 $2,961,278 $5,785,616 
              
COST OF SALES
 $1,363,614  1,889,145  2,672,093  3,889,375 
              
GROSS PROFIT
  71,062  711,002  289,185  1,896,241 
              
OPERATING EXPENSES
             
Consulting and other compensation  73,998  212,955  345,382  642,318 
Salaries and related  74,123  110,336  127,619  226,970 
Selling, general and administrative  278,441  195,095  716,470  368,371 
TOTAL OPERATING EXPENSES
  426,562  518,386  1,189,471  1,237,659 
              
OPERATING INCOME (LOSS)
  (355,500) 192,616  (900,286) 658,582 
              
OTHER INCOME (EXPENSES)
             
Gain (loss) on writeoff of accounts payable  3,577  4,729  60,205  (6,959)
Interest expense  (497,382) (722,273) (984,151) (1,187,514)
              
TOTAL OTHER EXPENSES
  (493,805) (717,544) (923,946) (1,194,473)
              
LOSS BEFORE PROVISION FOR
             
INCOME TAXES
  (849,305) (524,928) (1,824,232) (535,891)
              
PROVISION FOR INCOME TAXES
  -  -  -  - 
              
NET LOSS
 $(849,305)$(524,928)$(1,824,232)$(535,891)
              
Preferred Stock Dividends $(41,275)$27,350 $(41,275)$27,350 
              
NET LOSS APPLICABLE
             
TO COMMON STOCKHOLDERS
 $(890,580) (497,578)$(1,865,507)$(508,541)
              
Basic and diluted net loss available to
             
common stockholders per common share
 $(0.06) (0.04)$(0.13)$(0.04)
              
Basic and diluted weighted average common
             
shares outstanding
  14,200,975  12,654,601  14,040,672  12,320,927 


     As Restated 
  2009  2008 
       
CONTRACT REVENUES $1,298,458  $1,526,602 
         
COST OF SALES  1,365,543   1,308,479 
         
GROSS PROFIT  (67,085)  218,123 
         
OPERATING EXPENSES        
Consulting and other compensation  62,615   271,384 
Salaries and related  153,087   53,496 
Selling, general and administrative  268,271   438,029 
TOTAL OPERATING EXPENSES  483,973   762,909 
         
OPERATING (LOSS)  (551,058)  (544,786)
         
OTHER INCOME (EXPENSES)        
Gain on writeoff of accounts payable  5,681   56,628 
(Loss) / gain on derivative liabilities  (2,738,436)  1,300,762 
Interest expense  (490,498)  (486,769)
         
TOTAL OTHER INCOME (EXPENSES)  (3,270,811)  870,621 
         
INCOME (LOSS) BEFORE PROVISION FOR        
INCOME TAXES  (3,821,869)  325,835 
         
PROVISION FOR INCOME TAXES  -   - 
         
NET INCOME ( LOSS) $(3,821,869) $325,835 
         
NET INCOME (LOSS) APPLICABLE        
TO COMMON STOCKHOLDERS $(3,821,869) $325,835 
         
Basic net income (loss) available to        
common stockholders per common share $(0.25) $0.02 
         
Diluted net income (loss) available to        
common stockholders per common share  (0.25) $0.01 
         
Basic weighted average common        
shares outstanding  15,344,654   14,033,089 
         
Diluted weighted average common        
shares outstanding  15,344,654   41,981,711 

See accompanying notes to the condensed consolidated financial statements.

F-2

 
NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the SixThree Months Ended June 30,March 31, 2009 and 2008 and 2007
(Unaudited)


  
2008
 
2007
 
      
      
Cash flows from operating activities:     
Net loss $(1,824,232)$(535,891)
Adjustments to reconcile net loss to net cash       
(used in) provided by operating activities:       
Depreciation and amortization of property and equipment   41,232  63,535 
Gain on write off of accounts payable   (60,205) - 
Amortization of deferred financing cost   180,960  179,148 
Amortization of debt discount   503,788  848,485 
Amortization of deferred consulting fees and deferred employees stock option   168,165  (126,683)
Estmated fair market value of common stock issued for consulting services         
and related change in fair value  83,000  610,000 
Conversion of interest to common stock   -  74,317 
Bad debt expense   27,259  - 
        
Changes in operating assets and liabilities:        
 Contracts receivable  20,717  (4,766)
 Inventories  232,377  (173,695)
 Costs and estimated earnings in excess of billings on uncompleted contracts  135,363  48,960 
 Prepaid expenses and other current assets  (264,416) 18,645 
 Notes receivable from stockholders  -  (17,500)
 Accounts payable and accrued liabilities  202,406  (77,846)
 Billings in excess of costs and estimated earnings on uncompleted contracts  241,013  (99,635)
        
Net cash (used in) provided by operating activities  (312,573) 807,074 
        
Cash flows from investing activities:       
Purchases of property and equipment  -  (30,000)
        
Net cash used in investing activities  -  (30,000)
        
Cash flows from financing activities:       
Restricted cash  -  123,898 
Bank overdraft  47,665  6,929 
Proceeds of issuance of convertible notes payable  -  - 
Principal payments on notes payable  (16,821) (620,523)
Deferred financing costs  -  - 
        
Net cash provided by (used in) financing activities  30,844  (489,696)
        
Net (decrease) increase in cash  (281,729) 287,378 
        
Cash at beginning of period  281,729  53,318 
        
Cash at end of period $- $340,696 
        
Supplemental disclosure of non-cash financing and investing activities:       
        
Accrued cumulative dividends on preferred stock $41,275 $42,400 
        
Reversal of accrued dividends older than four years on preferred stock $- $(69,750)
        
Conversion of notes payable and interest to common stock $- $424,317 
        
Common stock and warrants issued for deferred financing costs $102,500 $- 
     As Restated 
  2009  2008 
       
Cash flows from operating activities:      
Net loss $(3,821,869) $325,835 
Adjustments to reconcile net loss to net cash        
(used in) provided by operating activities:        
Depreciation and amortization of property and equipment  14,029   20,757 
Bad debt expense (recovery)  -   - 
Gain on write off of accounts payable  (5,681)  - 
Gain on forgiveness of debt  -   (2,872,133)
Amortization of deferred financing cost  80,021   89,574 
Amortization of stock-based consulting fees  20,000   125,345 
and employee compensation        
Amortization of debt discount  339,160   251,894 
Estmated fair market value of common stock issued for services  -   75,000 
(Gain) loss on valuation of liabilities  2,738,436   (1,300,962)
         
Changes in operating assets and liabilities:        
Contracts receivable  (96,604)  (60,178)
Inventories  151,133   170,900 
Costs and estimated earnings in excess of billings on uncompleted contracts  401,113   (22,635)
Prepaid expenses and other current assets  2,735   (222,867)
Accounts payable and accrued liabilities  238,419   (151,182)
Billings in excess of costs and estimated earnings on uncompleted contracts  (564,870)  410,089 
         
Net cash (used in) provided by operating activities  (564,870)  (288,432)
         
Cash flows from investing activities:        
Purchases of property and equipment  -   - 
         
Bank overdraft  16,823   12,899 
Proceeds from issuance of convertible notes payable  730,000   - 
Principal payments on notes payable and capital lease  (6,652)  (6,196)
         
Net cash provided by (used in)  financing activities  740,171   448,052 
         
Net (decrease) increase  in cash  236,193   (281,729)
         
Cash at beginning of period  31,889   281,729 
         
Cash at end of period $268,082  $0 
         
Derivative Liability from new Camhzn note  39,997     
Derivative Liability from new Camofi note  161,289     
 
See accompanying notes to the condensed consolidated financial statements.

F-3


NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,MARCH 31, 2008 AND 2007 (As Restated)

 
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Organization And Nature Of Operations
 
New Century Companies, Inc. and its wholly owned subsidiary, New Century Remanufacturing,Remanufacturong, Inc., (collectively, the "Company"), a California corporation, was incorporated March 1996 and is located in Southern California. The Company provides after-market services, including rebuilding, retrofitting and remanufacturing of metal cutting machinery. Once completed, a remanufactured machine is "like new" with state-of-the-art computers and the cost to the Company's customers is substantially less than the price of a new machine.
 
The Company currently sells its services by direct sales and through a network of machinery dealers across the United States. Its customers are generally medium to large sized manufacturing companies in various industries where metal cutting is an integral part of their businesses. The Company grants credit to its customers who are predominately located in the western United States.
 
The Company trades on the OTC Bulletin Board under the symbol "NCNC.OB".
 
Principles Of Consolidation
 
The condensed consolidated financial statements include the accounts of New Century Companies, Inc. and its wholly owned subsidiary, New Century Remanufacturing, Inc.. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
Basis Of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes hereto should be read in conjunction with the consolidated financial statements, accounting policies and notes thereto included in the Company's Annual Report on Form 10-KSB10-K for the year ended December 31, 2007,2008, filed with the SEC. In the opinion of management, all adjustments necessary to present fairly, in accordance with GAAP, the Company's financial position as of June 30, 2008,March 31, 2009, and the results of operations and cash flows for the interim periods presented, have been made.  Such adjustments consist only of normal recurring adjustments.  The results of operations for the three and six months ended June 30, 2008March 31, 2009 are not necessarily indicative of the results for the full year ending December 31, 2008.2009. Amounts related to disclosure of December 31, 20072008 balances within these interim condensed consolidated financial statements were derived from the audited 20072008 consolidated financial statements and notes thereto.

F-4


The statement of operations and statement of cash flows for the three months ended March 31, 2008 included herein were restated to reflect the effect of changes to the original accounting for the 12% CAMOFI Note issued in February 2006.  The original accounting did not record the separate derivative liability for the conversion option and warrants in accordance with FAS 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled In, a Company’s Own Stock.”  For additional information regarding the restatement, see Note 6 of the condensed consolidated financial statements on Form 10-Q for the three months ended March 31, 2009 included herein and see Note 11 to our Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Reclassifications

The Company has reclassified the presentation of current prior-year information to conform to the current presentation.
Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. TheAs of March 31, 2009, the Company has losses from operations year to date of approximately $849,000, an accumulated deficit of approximately $13,098,000 and$16,701,824, had recurring losses, a negative working capital balancedeficit of approximately $701,000.$8,485,264, and was also in default on two of its convertible notes. 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 renegotiated or new 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, 2008.2009. Therefore, the Company will be required to seek additional funds to finance its long-term operations.

In response to these problems, management has taken the following actions:
·The Company continues its aggressive program for selling inventory.
·The Company continues to implement plans to further reduce operating costs.
·The Company is seeking investment capital through the public and private markets.
·The Company has successfully restructured its debt, eliminating the penalties and interest for past default and extending the repayment term (See Note 3).

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 machines.
·The Company continues to implement plans to further reduce operating costs.
·The Company is seeking investment capital through the public and private markets.

The condensed consolidated financial statements do not include any adjustments related to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
 
F-5

Inventory
 
Inventories are stated at the lower of cost or net realizable value. Cost is determined under the first-in, first-out method. Inventories represent cost of work in process on units not yet under contract. Cost includes all direct material and labor, machinery, subcontractors and allocations of indirect overhead cost, offset by reserve for estimated markdowns onoverhead. The Company had inventory costs.
Inventory costs as of June 30, 2008reserves approximating $577,000 and $533,000 at March 31, 2009, and December 31, 2007:

  June 30, 2008 December 31, 2007 
      
Cost of labor $67,000 $86,000 
Cost of materials  451,000  615,000 
Cost of subcontracted services  42,000  61,000 
Allocation of indirect overhead cost  
380,000
  
410,000
 
        
Gross inventory $
940,000
 $1,172,000 
        
Reserve for estimated markdowns on inventory costs  
(286,000
)
 (286,000)
        
Net inventory $
654,000
 $886,000 
2008, respectively.
 
F-5

  
Inventory
cost
(thousands)
  
Direct
Labor
(thousands)
  
Direct
Material
(thousands)
  
Subcontractors
(thousands)
  
Allocation of
Indirect
Overhead
(thousands)
 
03/31/09 $990  $66  $523  $47  $354 
12/31/2008 $1,097  $107  $568  $45  $377 
 
Revenue Recognition
 
The Company's revenues consist primarily of contracts with customers. The Company uses the percentage-of-completion method of accounting to account for long-term contracts pursuant to Statements of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type 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 Statements of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.”contracts.

For revenues from stock inventory the Company follows Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition", which outlines the basic criteria that must be met to recognize revenue other than revenue on contacts, and provides guidance for presentation of this revenue and for disclosure related to these revenue recognition policies in financial statements filed with the SEC.
 
For contracts, the amount of revenue recognized at the financial statement date is the portion of the total contract price that the cost expended to date bears to the anticipated final cost, based on current estimates of cost to complete. It is not related to the progress billings to customers. Contract costs include all materials, direct labor, machinery, subcontract costs and allocations of indirect overhead.
F-6

 
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 financial statements.
 
Contracts that are substantially complete are considered closed for financial statement purposes. Costs incurred and revenue earned on contracts in progress in excess of billings (under billings) are classified as a current asset. Amounts billed in excess of costs and revenue earned (over billings) are classified as a current liability.
 
The Company accounts for shipping and handling fees and costs in accordance with Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." Shipping and handling fees and costs incurred by the Company are immaterial to the operations of the Company and are included in cost of sales.
 
In accordance with Statements of Financial Accounting Standards ("SFAS") No. 48, "Revenue Recognition when Right of Return Exists," revenue is recorded net of an estimate for markdowns, price concessions and warranty costs. Such reserve is based on management's evaluation of historical experience, current industry trends and estimated costs. As of June 30, 2008,March 31, 2009, the Company estimated the markdowns, price concessions and warranty costs and concluded amounts are immaterial and did not record any adjustment to revenues.
 
F-6

Basic And Diluted Loss Per Common Share

Basic net incomeearnings (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 income (loss)loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for each respective period.

Common stock equivalents, representing convertible preferred stock,Preferred Stock, convertible debt, options and warrants totaling approximately 1,352,00053,887,000 at June 30, 2008 and 6,192,972 at DecemberMarch 31, 20072009 are not included in the diluted loss per share as they would be anti-dilutive. Accordingly,Common stock equivalents, representing convertible Preferred Stock, convertible debt, options and warrants totaling approximately 41,982,000 are included in the diluted and basic loss per common share are the same at June 30, 2008 and DecemberMarch 31, 2007.2008.
 
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,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 methodfair value recognition provisions of adoptionthis statement, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.  Estimated compensation for SFAS No. 123-R,grants that were outstanding as of the effective date will be recognized over the remaining service period using the compensation cost recognized byestimated for 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.123 pro forma disclosures.  The Company had no equity incentive awards granted prior to January 1, 2006 that were not yet vested. Accordingly, $0For the three months ended March 31, 2009 and $86,400 of2008, no share-based compensation expense was recognized in the accompanying condensed consolidated financial statements for the three month periods ended June 30, 2008 and 2007, respectively. $0 and $216,000 of share-based compensation expense was recognized in the accompanying condensed consolidated financial statements for the six month periods ended June 30, 2008 and 2007, respectively.operations.

F-7


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 June 30, 2008, the Company had 1,050,000 options available for future issuance under their equity compensation plans.

There isare no 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 three or six months ended June 30, 2008March 31, 2009 and 2007.2008. Share-based compensation recognized as a result of the adoption of SFAS No. 123-R use the Black-ScholesBlack Scholes option pricing model for estimating fair value of options granted.

F-7

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,changed.

At March 31, 2009, the Company estimated (using the Black Scholes pricing model) the fair value of options granted and no changes occurred invariance has been found. Therefore, the effect of forfeiture adjustments at the period ended June 30, 2007.March 31, 2009 was not applicable.
 
Options outstanding that have vested and are expected to vest as of June 30, 2008March 31, 2009 are as follows:

      Weighted   
    Weighted Average   
    Average Remaining Aggregate 
  Number of Exercise Contractual Intrinsic 
  Shares Price Term in Years Value (1) 
Vested (2)  3,950,000 $0.20  0.97 $
 
Expected to vest                $
 
Total  3,950,000              $
 
        Weighted    
     Weighted  Average    
     Average  Remaining  Aggregate 
  Number of  Exercise  Contractual  Intrinsic 
  Shares  Price  Term in Years  Value (1) 
             
Vested  3,450,000  $0.17   1.74  $ 
Expected to vest (2)  650,000  $0.08   0.16  $ 
Total   4,100,000          $ 
 
(1)These values are calculated as the difference between the exercise price and $0.13, the closing market price of the Company's common stock on June 30, 2008 as quoted on the Over-the-Counter Bulletin Board under the symbol "NCNC.OB" for all in-the-money options outstanding.
(2)Includes 800,000 options that became 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.
F-8


    Outstanding Options 
  Shares   Weighted Aggregate 
  Available Number of Average Intrinsic 
  for Grant Shares Exercise Price Value (1) 
          
December 31, 2007  1,050,000  3,950,000 $0.20 $79,000 
              
Grants  
  
  
    
Exercises  
  
  
    
Cancellations  
  
  
    
June 30, 2008  1,050,000  3,950,000 $0.20 $
 
              
Options exercisable at:             
June 30, 2008     3,950,000 $0.20    
December 31, 2007     3,150,000 $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 June 30, 2008March 31, 2009 and December 31, 2007,2008, the market price of the Company's common stock was $0.13$0.08 and $0.22,$0.05, respectively) for all in-the-money options outstanding..
.
(2)           The 650,000 options become fully vested on April 8, 2009 and are valued at $35,014 based on the stock market price of the shares at the contract date.
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, 2008  900,000   4,100,000  $0.15  $ 
Grants             
Exercises             
Cancellations             
March 31, 2009  900,000   4,100,000  $0.15  $ 
                 
Options exercisable at:                
March  31, 2009      3,450,000  $0.17     
December 31, 2008      3,450,000  $0.17     
(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 March 31, 2009 and December 31, 2008, the market price of the Company's common stock was $0.08 and $0.05, 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).
 
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.


The following table summarizes information related to stock options outstanding and exercisable at March 31, 2009:

Exercise Price 
Number of
Option
outstanding
  
Weighted
Average
Remaining
Contractual
Life (Years)
  
Weighted
Average
Exercise
Price
  
Exercisable
at March
31, 2009
(1)
 
$ 0.075-0.0825  1,300,000   0.40  $0.08   650,000 
                 
$ 0.15-0.20  2,800,000   0.19  $0.19   2,800,000 
                 
   4,100,000      $0.15   3,450,000 
(1)650,000 options become fully vested on April 8, 2009 and are valued at $35,014 based on the stock market price of the shares at the contract date.

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 March 31, 2009 and December 31, 2008:

  
  
     Weighted  Aggregate 
  Number of  Average  Intrinsic 
  Shares  Exercise Price  Value (1) 
          
December 31, 2008  5,586,824  $0.21  $ 
             
Grants          
Replaced          
Exercises          
Cancellations/ Terminated          
             
Outstanding and Exercisable at            
  5,586,824  $0.21    
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 March 31, 2009 and December 31, 2008, the market price of the Company's common stock was $0.08 and $0.05, respectively).
The following table summarizes information related to warrants outstanding and exercisable at December 31, 2009:

Exercise Price 
Number of
Warrants
outstanding
  
Weighted
Average
Remaining
Contractual
Life (Years)
  
Weighted
Average
Exercise
Price
  
Exercisable
at March
31, 2009
 
$ 0.60-0.70  1,372,538   0.84  $0.64   1,372,538 
                 
$ 0.07  4,214,286   3.76  $0.07   4,214,286 
                 
   5,586,824      $0.21   5,586,824 

Deferred Financing Costs

Note Payable

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.

In June 2008, in connection with the CAMOFI debt reduction as discussed in Note 3, the Company entered into a contract with a third party for financial services. The Company issued 300,000 shares of common stock valued at $36,000, based on the market price of the shares on the date of the agreement. The fee is capitalized and amortized over the term of the related debt.

During the three months ended June 30, 2008March 31, 2009 and 2007, the Company amortized approximately $90,000 to interest expense. During the six months ended June 30, 2008 and 2007, the Company amortized approximately $181,000 to interest expense. At June 30, 2008, the unamortized portion of deferred financing costs for the CAMOFI note payable is approximately $275,000.

Real Estate Lease

On April 1st, 2008, the company entered into a commercial lease agreement to lease its premises for ten years. Per the lease, the Company incurred a brokerage fee of approximately $72,500. This cost is capitalized and amortized over the term of the lease.

During the three months ended June 30, 2008, the Company amortized approximately $1,800$80,000 and $90,000, respectively, to rentinterest expense. At June 30, 2008, the unamortized portion of deferred brokerage fees for the lease payable is approximately $70,000.
 
Income Taxes

We adopted the provisions of Financial Standards Accounting Board Interpretation No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation of FASB Statement No. 109 ("SFAS 109") on January 1, 2007. The implementation of FIN 48 did not result in any adjustment to the Company's beginning tax positions.  The Company continues to fully recognize its tax benefits which are offset by a valuation allowance to the extent that it is more likely than not that the deferred tax assets will not be realized.  As of June 30, 2008,March 31, 2009, the Company did not have any unrecognized tax benefits. The Company files a Consolidated Federal income tax return in the U.S. The Company files a separate income tax return in the State of California. The Company is no longer subject to U.S. Federal tax examinations for the years before 2004,2005, and to the State of California for the years before 2003.2004.

Fair Value Measurements

The Company adopted  SFAS No. 157, “Fair Value Measurements”, in the first quarter of fiscal 2008.  SFAS 157 was amended in February 2008 by the Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) FAS No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions”, and by FSP FAS 157-2, “Effective Date of FASB Statement No. 157”, which delayed the Company’s application of SFAS 157 for nonrecurring nonfinancial assets and liabilities until January 1, 2009. FAS 157 was further amended in October 2008 by FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, which clarifies the application of SFAS 157 to assets participating in inactive markets.
Implementation of SFAS 157 did not have a material effect on the Company’s results of operations or financial position and had no effect on the Company’s existing fair-value measurement practices. However, SFAS 157 requires disclosure of a fair-value hierarchy of inputs the Company uses to value an asset or a liability. The three levels of the fair-value hierarchy are described as follows:
 
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. For the Company, Level 1 inputs include quoted prices on the Company’s securities that are actively traded.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly. For the Company, Level 2 inputs include assumptions such as estimated life, risk free rate and volatility estimates used in determining the fair values of the Company’s option and warrant securities issued.

Level 3: Unobservable inputs for the asset or liability. Beginning January 1, 2009, Level 3 inputs may be required for the determination of fair value associated with certain nonrecurring measurements of nonfinancial assets and liabilities. The Company does not currently present any nonfinancial assets or liabilities at fair value.

Significant Recent Accounting Pronouncements

In December 2007, the FASBFinancial Accounting Standards Board (“FASB”)  issued Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS No. 141(R), Business Combinations141R”). SFAS No. 141(R) retains the fundamental141R establishes principles and requirements in SFAS No. 141, Business Combinations, that the acquisition method of accounting be used for all business combinations and forhow an acquirer to be identified for eachin a business combination. SFAS No. 141(R) requires an acquirer to recognizecombination: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree atacquiree; 2) recognizes and measures the acquisition date, measured at their fair values as of that date, with limited exceptions specifiedgoodwill acquired 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 partor a gain from a bargain purchase; and 3) determines what information to disclose to enable users of the purchase price allocation.financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will be applied prospectively to141R is effective for 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. TheTherefore, the Company expects to adopt SFAS No. 141(R) to141R for any business combinations with an acquisition date on or after January 1,entered into beginning in 2009.

In December 2007,May 2008, the FASB issued SFAS No. 160, Noncontrolling Interests162, “Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). This statement is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in Consolidated Financial Statements, anpreparing financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the U.S. Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendment to ARB No. 51. SFAS No. 160 changesAU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The adoption of this Statement is not expected to have a material impact on 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 itsCompany’s consolidated financial statements.position or results of operations.

In September 2006,April 2009, the FASB issuedStaff Position (“FSP”) 107-1 (“FSP 107-1”) amended SFAS No. 157, “Fair107, “Disclosures about Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expandsof Financial Instruments”, to require disclosures about fair value measurements. SFASof financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP 107-1 also amended Accounting Principals Board (“APB”) Opinion No. 157 applies under other accounting pronouncements that28, “Interim financial Reporting” to require or permit fair value measurements, the FASB having previously concludeddisclosures in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 issummarized financial information at interim reporting periods. FSP 107-1 becomes effective for fiscal years beginninginterim reporting periods ending after DecemberJune 15, 2007. The2009, with early adoption permitted for periods ending after March 15, 2009 if a company also elects to FSP FAS 157-4, “Determining Fair Value When the Volume and Level of SFAS No. 157 did notActivity for the Asset or Liability Have Significantly Decreased and Indentifying Transactions That Are Not Orderly”, and FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”. Management is evaluating the impact this FSP will have a significant impact on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 expands the scope of specific types of assets and liabilities that an entity may carry at fair value on its statement of financial position, and offers an irrevocable option to record the vast majority of financial assets and liabilities at fair value, with changes in fair value recorded in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a significant impact on the Company’s financial statements.disclosures.

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.
 
 
2. CONTRACTS IN PROGRESS

Contracts in progress which include completed contracts not completely billed approximate:approximate the following as of March 31, 2009 and December 31, 2008:

  June 30, 2008 December 31, 2007 
      
Cumulative costs to date $ 5,017,000 $7,007,000 
Cumulative gross profit to date  4,007,000  7,893,000 
        
Cumulative revenue earned  
9,024,000
  
14,900,000
 
Less progress billings to date  
(8,918,000
)
 
(14,350,000
)
        
Net under billings $106,000 
$
550,000
 
  March 31, 2009  December 31, 2008 
       
Cumulative costs to date $2,029,000  $6,756,000 
Cumulative gross profit to date  1,327,000   5,768,000 
         
Cumulative revenue earned  3,356,000   12,524,000 
Less progress billings to date  (4,081,000)  (13,495,000)
         
Net under billings $(725,000) $(971,000)

The following approximate amounts are included in the accompanying condensed consolidated balance sheets under these captions:

  June 30, 2008 December 31, 2007 
      
Costs and estimated earnings in excess of billings on uncompleted contracts $
435,000
 $571,000 
Billings in excess of costs and estimated earnings on uncompleted contracts  
(329,000
)
 
(88,000
)
        
Net under billings $
106,000
 $
483,000
 
  March 31, 2009  December 31, 2008 
       
Costs and estimated earnings in excess of billings on uncompleted contracts $16,000  $417,000 
         
Billings in excess of costs and estimated earnings on uncompleted contracts  (741,000)  (1,388,000)
         
Net under billings $(725,000) $(971,000)
 
 
3. CAMOFI Master LDC (“CAMOFI”)CONVERTIBLE DEBT
On February 28, 2006, the Company secured a 12% senior convertible promissory note with CAMOFI Master LDC. As of June 26, 2008 an aggregate of $3,800,890 principal, interest and penalties were due under the note.

Pursuant to a letter agreement dated June 26, 2008 (the “Letter Agreement”) between New Century Companies, Inc. (the “Company”) and CAMOFI Master LDC (“CAMOFI”), CAMOFI agreed to waive certain penalties and default interest which have been accrued under the transaction documents previously entered into with CAMOFI, including aAND CAMHZN 12% AND 15% Senior Secured Convertible PromissoryDebt
The Company’s convertible debt financing, Amended 12% CAMOFI Convertible Note due February 20,(“Amended 12% CAMOFI Note) and 15% CAMHZN Convertible Note (“15% CAMHZN Note”), are in default.  The last monthly contractual payment on the CAMOFI note was made in October 2008 and no payments have made on the CAMHZN Note which were scheduled to begin on September 1, 2008.  The Convertible Notes aggregate to $3,784,271 principal and interest.  As of March 31, 2009 and December 31, 2008, the principal balances, accrued interest and the debt discounts are presented in the original principal amountConvertible Debt Table, bellow.
  March 31, 2009  December 31, 2008 
CONV NOTES CAMOFI  CAMHZN  CAMOFI  CAMHZN 
Principal $2,827,281  $750,000  $2,827,281  $750,000 
Discount related to warrants liability $(100,355) $(41,170) $(119,369) $(48,890)
Discount related to convertible option liability $(1,605,749)     $(1,909,996)    
Discount related to stock issued with notes $(50,508)     $(60,078)    
Notes presented net of debt discounts $z1,070,669  $708,830  $737,838  $701,110 
                 
Accrued Interest $141,364  $65,626  $56,546  $37,500 
During the three months ended March 31, 2009 and 2008, the Company amortized debt discounts of $3,500,000, Security Agreement,approximately $333,000 and $252,000, respectively, to interest expense related to the 12% and 15% Convertible Notes.

The Convertible Debt and Warrant Agreements include an Amended and Restated Registration Rights Agreement,anti-dilution feature and a Subsidiary Guaranty. The waiver is subject tobuy-in clause which cause the Company’s performance of its obligations under the Letter Agreementembedded conversion option and the execution of further documentationwarrants to be preparedtreated as derivative liabilities. which are fair valued on a quarterly basis and the resulting change in fair value of the derivative liabilities are recorded as a gain or loss upon valuation in the statement of operations.

In connection with the Letter Agreement. Pursuant to the Letter Agreement,Amended 12% CAMOFI Note, the Company issued an amended and restated Note (the “Amended Note”) in the principal amount of $2,950,000 with a new maturity date of August 1, 2010.

Additionally, under the Letter Agreement, the Company issued 725,000 shares of common stock and 725,000 five year warrants with an exercise price of $0.10 and 725,000 five year warrants with an exercise price of $0.20.  Commencing on August 1, 2008, and continuing thereafter on the first business day of every month for the next twenty-four months, the Company has the obligation to pay to CAMOFI the amount of $70,000, allocated firstDue to the paymentanti-dilution feature in the warrant agreements, the warrants have a reduced exercise price of interest$.07 and second toadjusted total warrants of 3,214,286 at March 31, 2009 and December 31, 2008.  As of March 31, 2009 and December 31, 2008, the payment of principal on the Amended and Restated Note. On or before August 1, 2010, the Company shall pay to CAMOFI all amounts still outstanding under the Amended and Restated Note, whether of principal, interest or otherwise.

The transaction qualified as Troubled Debt Restructuring under SFAS No. 15 due to the company’s current financial difficulties and the concessions granted by CAMOFI.  In accordance with SFAS No. 15, no gain on the forgiveness of interest and penalties  was recognized  as the carrying value of the note did not exceed the future cash payment at the time of transaction.  The fair value of the warrantswarrant derivative liability was determined to be $257,143 and stock given to CAMOFI was approximately $233,000 based on the Black Scholes pricing model and119,369 respectively.  A loss upon valuation of $105,743 was recorded as a reduction to the note  The remaining forgiveness of the interest and penalties of $624,000 were recorded as a deferred gain.

The assumptions used in the Black-Scholes pricing model for this transaction were as following, risk free rate of 3.44%, expected life of 5 years and an implied volatility of 187%.  

CAMOFI also cancelled 3,476,190 warrants with a term of five years, which were issued on February 28, 2006 with an exercise price of $0.63 and 1,500,000 warrants dated December 19, 2006 with an exercise price of $0.35. The fair value of such warrants on June 26, 2008 was approximately $530,000, based on the Black-Scholes pricing model and recorded as a deferred gain to be amortized to interest expense over the life of the debt.
Stock Purchase Warrants Issued and Cancelled in connection with CAMOFI note
In 2006, the Company granted warrants in connection with the issuance of 12% Senior Secured Convertible Promissory Note. 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. During the three months ended June 30, 2008 and 2007, the Company amortized approximately $175,000 and $348,000, respectively, to interest expense. During the six months ended June 30, 2008 and 2007, the Company amortized approximately $333,000 and $531,000, respectively, to interest expense.
Beneficial Conversion Feature Of CAMOFI Convertible Notes Payable discontinued on June 26, 2008 for restructured debt
The convertible feature of certain notes payable provide 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 condensed 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 three months ended June 30, 2008 and 2007, the Company amortized approximately $84,000 and $208,000, respectively, to interest expense. During the six months ended June 30, 2008 and 2007, the Company amortized approximately $178,000 and $318,000, respectively, to interest expense. As part of the restructuring of the CAMOFI debt as discussed in Note 3, the CAMOFI debt no longer has a conversion feature.
For the three and six months ended June 30, 2008, no principal payments were made on the CAMOFI note. As of June 30, 2008 and DecemberMarch 31, 2007, the principal balance is approximately $2,950,000 and $2,567,000, respectively, which is presented net of debt discounts totaling approximately $664,000 and $1,176,000, respectively.2009.
 
 
In connection with the 15% CAMHZN Note, the Company issued 1,000,000 seven year warrants with an exercise price of $.07.  As of March 31, 2008 and December 31, 2008, the fair value of the warrant derivative liability was determined to be $80,000 and 50,000 respectively. A loss upon valuation of $30,000 was recorded for the three months ended March 31, 2009.

The Amended 12% CAMOFI and 15% CAMHZN Notes are both convertible into shares of common stock at a conversion price of $0.07. At March 31, 2009 and December 31, 2008, the aggregate fair value of the conversion option derivative liabilities was $3,330,977 and 1,515,634, respectively. A loss upon valuation of $1,815,343 was recorded for the three months ended March 31, 2009.

During the three months ended March 31, 2008, the Company recorded a loss upon valuation of 1,921,086 in connection with the change in fair values of the warrant and conversion option derivative liabilities related to the 12% CAMOFI Note.

CAMOFI AND CAMHZN Senior Secured Convertible Debt 83.42857% of face amount.

On February 18, 2009, the Company entered into an agreement with CAMOFI Master LDC for the issuance of a Senior Secured Convertible Note for $701,200, maturing on August 18, 2009. The Note can be converted at $0.07 per share at any time during the term of the convertible note. The Note was issued at a discount of 83.42857% of the face amount. The note is secured by all of the assets of the Company.

On February 18, 2009, New Century Companies, Inc. (the “Company”) entered into an agreement with CAMHZN Master LDC for the issuance of a Senior Secured Convertible Note for $173,800 maturing on August 18, 2009. The Note can be converted at $0.07 per share at any time during the term of the convertible note. The Note was issued at a discount of 83.42857% of the face amount.

The Notes are convertible into shares of common stock with a conversion price of $0.07. Per FAS 133 “Accounting for Derivative Instruments and Hedging Activities”, the conversion option is a derivative liability. The Company recorded at issuance a $161,289 derivative liability for the CAMOFI Note, and a $39,977 derivative liability for the CAMHZN Note. The conversion option liability is revalued each quarter. At March 31, 2009 the fair value was $632,931 for the CAMOFI Note, and $156,879 for CAMHZN Note and a loss of $471,643 for the CAMOFI Note and $116,902 for the CAMHZN Note was recorded from the increase in the fair values of these derivative liabilities.

The Company recorded at issuance a $116,200 discount on the CAMOFI Note and a $28,800 discount on the CAMHZN Note for the difference between the face amount of the notes and the proceeds received. In addition, the discounts resulting from the conversion options of $161,289 on the CAMOFI Note and $39,977 on the CAMHZN Note are amortized into interest expense ratably over the life of the Notes. As of March 31, 2009, the Company recorded amortization expense on the debt discounts of $29,050 on the CAMOFI Note and $7,200 on the CAMHZN Note.
4. EQUITY TRANSACTIONS

Equity Compensation

In JuneFebruary 2008, the Company entered into a 19 dayyear contract with a third party for public relations services valued at $18,000.$30,000. The fee was paid in the form of 200,000150,000 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 is amortized to operating expense over the life of the agreement. At June 30, 2008, the remaining deferred consultingConsulting fees under this contract totaled $15,000.

In February 2008, the Company entered into a one-year contract with a third party for public relations services valued at $30,000. The fee was paid in the form of 150,000 shares of the Company’s common stock$2,500 and the value was based on the stock market price of the shares at the contract date. The fee was recorded as a deferred charge and is$5,000 were amortized to operating expense overduring the lifequarter ended March 31, 2009 and March 31, 2008, respectively. As of March 31, 2009 the agreement. At June 30, 2008, the remainingbalance of deferred consulting fees under this contract totaled $17,500.was fully amortized.

In February 2008, the Company entered into a three month contract with a third party for public relations services valued at $20,000. The fee was paid in the form of 100,000 shares of the Company’s common stock and the value was based on the stock market price of the shares at the contract date. The feevalue of the common stock on the date of the transaction was recorded as a deferred charge and wasis amortized to operating expense over the life of the agreement. At June 30,Consulting fees under this contract were amortized to expense during the year ended December 31, 2008 and at March 31, 2009 the feebalance of deferred consulting fees was amortized entirely.fully amortized.

In March 2008, the Company entered into a one month contract with a third party for public and financial communication services valued at $25,000. The fee was paid in the form of 125,000 shares of the Company’s common stock and the value was based on the stock market price of the shares at the contract date. The fee was recorded as a deferred charge and was amortized to operating expense over the life of the agreement. At June 30, 2008, the fee was amortized entirely.

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 a one year contract. The common stock was recorded at the estimated fair value of the common stock on the date of the transaction was recorded as a deferred charge and wasis amortized to operating expense over the life of the agreementagreement. Consulting fees under this contract  were amortized to expense during the year ended December 31, 2008 and recorded asat March 31, 2009 the balance of deferred compensation expense.consulting fees was fully amortized.

In June 2007, the Company issued 300,000 shares of common stock valued at $210,000 (based on the market price of the shares) toentered into a three year contract with a third party for internet public investor relations services under a three year contract.valued at $210,000. The fee was paid in the form of 300,000 shares of the Company’s common stock was recordedand valued based on the stock market price of the shares at the estimated faircontract date. The value of the common stock on the date of the transaction was recorded as a deferred charge and is$17,000 was amortized overto operating expense during the life of the agreement.quarter ended March 31, 2009. At June 30,March 31, 2009 and December 31, 2008, the remaining deferred consulting fees under this contract totaled $134,167.

In June 2007, the Company issued 15,000 shares of common stock valued at $10,500 (based on the market price of the shares) to a third party for public investor relations services under a 90 day contract. The common stock was recorded at the estimated fair value of the common stock on the date of the transaction$81,667 and was amortized over the life of the agreement.


In June 2007, the Company issued 75,000 shares of common stock valued at $52,500 (based on the market price of the shares) to a third party for corporate consulting and market services under a 6 month contract. The common stock was recorded at the estimated fair value of the common stock on the date of the transaction and was amortized over the life of the agreement.

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, 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 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, 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 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, 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 accordance with EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” since the value of the services were not readily determinable on transactions that occurred in 2007 and the fair value of the equity instruments was more reliably measurable, the value of the services were based on the market price of the shares. Further, under these arrangements, the performance criteria required for a measurement date was not reached until the service period was completed. As a result, the Company was required to re-measure the consideration at each reporting date based on its then current stock value. During the three and six months ended June 30, 2008, the Company recorded a decrease of approximately $10,000 on such services.$204,167, respectively.

During the three months ended June 30,March 31, 2009 and 2008, and 2007, the Company amortized approximately $90,000$20,000 and $125,000, respectively, of consulting expense related to deferred consulting fees on such equity based compensation arrangements. During the six months ended June 30, 2008 and 2007, the Company amortized approximately $179,000 of consulting expense related to deferred consulting fees on such equity based compensation arrangements.arrangements discussed above.

As of June 30, 2008March 31, 2009 and December 31, 2007,2008, the unamortized portion of consulting fees on such equity based compensation arrangements approximate $167,000$82,000 and $234,000,$102,000, respectively.

F-16

Dividends on preferred stock

The preferred shares Series C shares and preferred shares Series D shares have a mandatory cumulative dividend of $1.25 per share, which is payable on a semi-annual basis in September and December each year to holders of record on November 30 and May 31. The preferred shareholders have certain liquidation preferences and do not have any voting rights and have liquidation preferences.rights.

At June 30, 2008March 31, 2009 and December 31, 2007,2008, the Company had a total of 26,680 preferred shares Series C shares and 11,640 preferred shares Series D shares issued and outstanding. As of June 30, 2008March 31, 2009 and December 31, 2007,2008, the Company hasCompany’s accumulated dividends payable balances of $418,000 and $376,725, respectively.is $459,275. The Company did not declare any dividends during the three months ended March 31, 2009.


6. RESTATEMENT

The statement of operations and statement of cash flows for the three months ended March 31, 2008 included herein were restated to declare any dividendsreflect the effect of changes to the original accounting for the CAMOFI Note issued in February 2006.  The original accounting did not record the separate derivative for the conversion option and the warrants in accordance with FAS 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled In, a Company’s Own Stock”.

The effect of these changes impacted the balance sheet and the statement of operations from February 2006 through December 31, 2008. The balance sheet effect is due to recording the conversion option and warrant liabilities and the effect on the statement of operations is due to the gains and losses from the quarterly fair value adjustments and an increase in interest expense. Accordingly, the statement of operations for the three months ended March 31, 2008 has been restated as of June 30, 2008.summarized below:

Effect of Correction As Previously Reported  Adjustment  As Restated 
Balance Sheet as of March 31, 2009            
Conversion Option Liability  0   2,737,709   2,737,709 
Warrant Liability  0   1,713,023   1,713,023 
Accumulated Deficit  12,207,494   2,418,144   14,625,638 
Total Stockholders’ Deficit (equity)  1,908,610   4,899,674   6,808,284 
Statement of Operations for the three months ended March 31, 2009            
Marked-to-Market Gain (Loss)  0   1,300,762   1,300,762 
Net Income (Loss)  (974,927)  1,300,762   325,835 
EPS - Basic  (0.07)  0.09   0.02 
EPS - Diluted  (0.07)  0.03   0.008 
 
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

OVERVIEW

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

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

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

The primary industry segments in which the Company’s machines are utilized to make component parts are in aerospace, power generation turbines, military, component parts for the energy sector for natural gas and oil exploration and medical fields. The Company sells its products to customers located in 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 believes that a potential market for the Century Turn Lathe, in addition to the markets mentioned above, is aircraft landing gear.

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

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

The Company's current strategy is to expand its customer sales base with its present line of machine products. The Company's growth strategy also includes strategic acquisitions in addition to growing the current business. Plans for expansion are funded through current working capital from ongoing sales. A significant acquisition will require additional financing.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2008MARCH 31, 2009 COMPARED TO JUNE 30, 2007.MARCH 31, 2008.

Revenues.  The Company generated revenues of $1,434,676$1,298,458 for the three months ended June 30, 2008,March 31, 2009, which was a $1,165,471$228,144 or 45%15% decrease from $2,600,147$1,526,602 for the three  months  ended  June 30, 2007.March 31,  2008.  The decrease is the result of lower thanthen usual sales volume,and a tighter credit market, and manufacturing inefficiencies caused by the relocation of the Company’s operations to a new facility.market.

Gross Profit.  Gross profit for the three  months  ended June 30, 2008,March 31,  2009,  was $71,062$(67,085) or 5% of revenues,  compared to $711,002$218,123 or 27%14% of revenues for the three months ended June 30, 2007,March 31, 2008, a 90%131% decrease. The decrease in gross profit is due to certain fixed overhead expenses applied to lower revenues and increased cost of sales due to setting up a new plant after relocation.revenues.

Operating Loss.  Operating loss for the three months ended June 30, 2008,March 31, 2009, was $355,500$551,058 compared to operating income of $192,616$544,786 for the three months ended June 30, 2007.March 31, 2008. The increase in loss of $548,116$6,272 is primarily due to decreased revenues and lower gross profit on jobs in progress for the quarter ended June 30, 2008.March 31, 2009.

Interest Expense and Debt Discount Amortization.  Interest expense for the three months ended June 30, 2008,March 31, 2009, was $497,382$490,498 compared with $722,273$486,769 for the three months ended June 30, 2007.March 31, 2008. The decreaseincrease of $224,891 or 31%$3,729 in interest expenses is primarily due to $278,000 of debt discount charged toadditional interest expense related to the conversion of $350,000 of principal from the CAMOFI Note into the Company’s common stock during the three months ended June 30, 2007.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2008 COMPARED TO JUNE 30, 2007.

Revenues. The Company generated revenues of $2,961,278 for the six months ended June 30, 2008, which was a $2,824,338 or 49% decrease from $5,785,616 for the six months ended June 30, 2007. The decrease is the result of lower than usual sales volume, a tighter credit market, and business interruption and manufacturing inefficiencies caused by the relocation of the Company’s operations to aon new facility.convertible loans.
 

Gross Profit. Gross profitThe Company incurred total operating expenses of $483,973 for the sixthree months ended June 30, 2008,March 31, 2009, which was $289,185a $278,936 or 10% of revenues, compared to $1,896,241 or 33% of revenues37% decrease from $762,909 for the sixthree months ended June 30, 2007, a 85% decrease. March 31, 2008. In the three months ended March 31, 2009, compared with the three months ended March 31, 2008, all the operating expenses increased (decreased) as follow:

Increase/(Decrease)
%
Consulting and other compensation(77)
Salaries and related186
Selling, general and administrative(39)

The decrease in gross profitconsulting and other compensation is due to certain fixed overhead expenses applied to lower revenuesthe reduction in the number of consulting contracts and increased costthe expiration of salesthe existing contracts. The increase in salaries and related costs is due to relocation.the reclassification of certain costs to compensation and selling, general and administrative expenses decreased due to the increase in public company costs.

Change in Fair Value of Derivative Liabilities. In connection with its convertible notes, the Company recorded conversion options and warrant derivative liabilities. The derivative liabilities are reevaluated each reporting period. For the three months ended March 31, 2009, a $1,815,343 loss from increase in fair value of the conversion option liability and a $105,743 loss from increase in fair value of the warrant liability was recorded on the CAMOFI 12% Convertible Note. Also, there was a $30,000 gain from the increase in fair value associated with the warrants to purchase common stock, granted in connection with the $600,000 convertible debenture.

Operating Loss. OperatingAs of March 31, 2009, there was a $471,643 loss for the six months ended June 30, 2008, was $900,286 compared to operating income of $658,582 for the six months ended June 30, 2007. Thefrom increase in fair value of the February 2009 CAMOFI conversion option liability and a $116,902 loss from increase in the fair value of $1,558,868 is primarily due to one time relocation expenses, decreased revenues and lower gross profit on jobs in progress for the six months ended June 30, 2008.February 2009 CAMHZN conversion option liability.

Interest Expense and Debt Discount Amortization. Interest expense for the six months ended June 30, 2008, was $984,151 compared with $1,187,514 for the six months ended June 30, 2007. The decrease in fair value was recorded as a gain in the Company Statement of $203,363 or 17% in interest expenses is primarily due to $278,000 of debt discount charged to interest expense relatedOperation. (See Note 3 to the conversion of $350,000 of principal from the CAMOFI Note into the Company’s common stock during the six months ended June 30, 2007.
condensed consolidated financial statements).

FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES

The net cash decreaseincrease during the sixthree months ended June 30, 2008March 31, 2009 was $281,729.$236,193. The decreaseincrease is due to $312,573 net cash used in operating activities.$730,000 proceeds from issuance of 730,000 convertible note payable.

For the sixthree months ended June 30, 2008,March 31, 2009, the cash provided by financing activities was $30,844,$719,715, compared with $489,696 cash used in financing activities$448,052 in the sixthree months ended June 30, 2007.March 31, 2008. For the sixthree months ended June 30, 2007,March 31, 2008, cash was used to make principal payments on the CAMOFI loan. For the six months ended June 30, 2008, no principal payments were made on the CAMOFI loan.by operating activities.

GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company has losses from operations year to date of approximately $849,000, an accumulated deficit of approximately $13,098,000 and$16,701,824, a negativenet loss of approximately $3,821,869, a working capital balancedeficit of approximately $701,000.$8,485,264 and was also in default on two of its convertible debt. These factors, among others, raiseraises 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 renegotiated or new 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, 2008.2009. Therefore, the Company will be required to seek additional funds to finance its long-term operations.

In response to these problems, management has taken the following actions:
·The Company continues its aggressive program for selling inventory.
·The Company continues to implement plans to further reduce operating costs.
·The Company is seeking investment capital through the public and private markets.
·The Company has successfully restructured its debt, eliminating the penalties and interest for past default and extending the repayment term (See Note 3).

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.
 
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·The Company continues its aggressive program for selling machines.
·The Company continues to implement plans to further reduce operating costs.
·The Company is seeking investment capital through the public and private markets.

























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 June 30, 2008March 31, 2009 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
Material Weaknesses

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;
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(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.
8


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

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 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 establish an adequate Whistle Blower program for the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters to the Audit Committee and Board of Directors.
   We did not have an individual on our Board, nor on the Audit Committee, who meets the “Financial Expert” criteria.

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

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

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

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·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.(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 December 31, 2007 10-KSB filing during 2007.
   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.

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

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

4.(4)   We did not adequately design internal controls as detailed by the following:follows:

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

5.(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.
 
10CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING


We are in the process of remediation of the above noted weaknesses and are evaluating the most efficient method to complete this task.  However, based on our review, management has concluded that the financial statements included in this report fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.

Changes In Controls and Procedures

There have been no significant changes in ourthe Company's internal controlscontrol over financial reporting that occurred during ourthe Company's most recent fiscal quarter ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, ourthe Company's internal control over financial reporting. Inherent limitations exist in any system of internal control including the possibility of human error and the potential of overriding controls. Even effective internal controls overcan provide only reasonable assurance with respect to financial reporting.statement preparation. The effectiveness of an internal control system may also be affected by changes in conditions.

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PART II.  OTHER INFORMATION

Item 1.     Legal Proceedings

None.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.     Defaults Upon Senior Securities

None.Starting October 2008, the Company has been in default with all monthly payments on the 12% CAMOFI and 15% CAMHZN Convertible Note payable. As of March 31, 2009, the Companys default principal and interest aggregate to $510,000.

Item 4.     Submission of Matters to a Vote of Security Holders

None.

Item 5.     Other Information

None.

Item 6.     Exhibits

Exhibit 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 by Chief Executive Officer and
Exhibit 31.2 Certification required by Rule 13a-14(a) or Rule 15d-14(d) and under Section 302 of the Sarbanes-Oxley act of 2002 by Chief Financial Officer

Exhibit 32.1 Certification required by Rule 13a-14(a) or Rule 15d-14(d) and under Section 906 of the Sarbanes-Oxley act of 2002

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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.

May 20, 2009NEW CENTURY COMPANIES, INC.
  
 
NEW CENTURY COMPANIES, INC.



Date: August 14, 2008
/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.

May 20, 2009/s/ DAVID DUQUETTE
Name:  David Duquette
Title: Chairman, President and Director
  
Date: August 14, 2008May 20, 2009
 /s/ DAVID DUQUETTE
/s/ JOSEF CZIKMANTORI
 
Name: David Duquette
Title: Chairman, President and Director
Date: August 14, 2008
/s/ JOSEF CZIKMANTORI
Josef Czikmantori
 
Name: Josef Czikmantori
Title: Secretary and Director

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