U.S. SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number:
June 30, 2002 0-7722
NEW CENTURY COMPANIES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 061034587
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)
9835 Santa Fe Springs Road
Santa Fe Springs, CA 90670
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(Address of Principal Executive Offices) (Zip Code)
(562) 906-8455
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
--- ----
The number of shares of Common Stock, par value $ .10 per share, outstanding as
of June 30, 2002 is 4,962,808.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
ITEM 1. FINANCIAL STATEMENTS
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONTENTS
JUNE 30, 2002 (UNAUDITED)
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Page
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 3 - 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6 - 7
Notes to Consolidated Financial Statements 8 - 14
2
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2002 (UNAUDITED)
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ASSETS
Current Assets
Cash $ 331,677
Contracts receivable 464,911
Costs in excess of billings on contracts in progress 276,039
Inventory 1,590,501
Prepaid expenses and other current assets 44,466
---------------
Total current assets 2,707,594
PROPERTY AND EQUIPMENT, net 1,034,295
DEPOSITS 259,177
---------------
TOTAL ASSETS $ 4,001,066
===============
The accompanying notes are an integral part of these financial statements.
3
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Book overdraft $ 76,344
Notes payable 425,846
Current portion of capital lease obligations 45,512
Accounts payable 1,232,698
Accrued expenses 88,859
Billings in excess of costs and estimated earnings
on contracts in progress 1,512,422
---------------
Total current liabilities 3,381,681
CAPITAL LEASE OBLIGATIONS, net of current portion 27,888
---------------
Total liabilities 3,409,569
---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Cumulative, convertible, Series B Preferred Stock,
$1 par value, 15,000,000 shares authorized
38,900 shares issued and outstanding 38,900
5%, cumulative, convertible, Series C Preferred
Stock, $1 par value, 75,000 shares authorized
46,200 shares issued and outstanding (liquidation
preference of $1,155,000) 46,200
Common stock, $0.10 par value
6,000,000 shares authorized
4,970,527 shares issued and outstanding 497,053
Additional paid-in capital 2,801,025
Treasury stock, at cost, 164,414 shares (164,414)
Subscription receivable (1,087,500)
Loans to shareholders (433,345)
Accumulated deficit (1,106,422)
---------------
Total shareholders' equity 591,497
---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,001,066
===============
The accompanying notes are an integral part of these financial statements.
4
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002
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For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2002 2001 2002 2001
------------- -------------- ------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
NET SALES $ 2,227,233 $ 2,063,459 $ 3,571,043 $ 3,237,396
CONTRACT COSTS 1,824,997 1,659,349 2,874,637 2,794,384
------------- -------------- ------------- --------------
GROSS PROFIT 402,236 404,110 696,406 443,012
Operating expenses 465,331 351,373 864,958 482,077
------------- -------------- ------------- --------------
INCOME (LOSS) FROM OPERATIONS (63,095) 52,737 (168,552) (39,065)
------------- -------------- ------------- --------------
OTHER INCOME (EXPENSE)
Interest income 10,834 - 10,834 -
Interest expense (94,301) (17,626) (162,008) (27,659)
------------- -------------- ------------- --------------
Total other income (expense) (83,667) (17,626) (151,174) (27,659)
------------- -------------- ------------- --------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (146,762) 35,111 (319,726) (66,724)
PROVISION FOR INCOME TAXES - 62,559 - 62,259
------------- -------------- ------------- --------------
NET LOSS (146,762) (27,148) (319,726) (129,283)
PREFERRED STOCK DIVIDENDS - - 56,125 -
DEEMED DIVIDEND ON PREFERRED STOCK 308,029 - 308,029 -
------------- -------------- ------------- --------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (454,791) $ (27,148) $ 683,880) $ (129,283)
============= ============== ============= ==============
BASIC AND DILUTED LOSS ATTRIBUTABLE
TO COMMON SHAREHOLDERS PER COMMON SHARE $ (0.09) $ (0.01) $ (0.12) $ (0.03)
============= ============== ============= ==============
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
USED TO COMPUTE BASIC AND DILUTED LOSS
ATTRIBUTABLE TO COMMON SHAREHOLDERS
PER SHARE 5,025,684 2,707,537 5,738,495 4,468,693
============= ============== ============= ==============
The accompanying notes are an integral part of these financial statements.
5
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
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2002 2001
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (319,726) $ (129,283)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization of property and equipment 115,693 150,456
Amortization of consulting fees 155,031 -
Amortization of discount on notes payable 53,000 -
Interest income (17,916) -
(Increase) decrease in
Contracts receivable (158,735) (122,800)
Cost in excess of billings on contracts in progress (169,485) 56,854
Inventory (397,297) (62,970)
Prepaid expenses and other current assets 71,383 23,524
Deferred tax assets - (28,256)
Increase (decrease) in
Accounts payable 135,224 301,007
Accrued expenses (226,526) 193,973
Billings in excess of costs and estimated earnings
on contracts in progress 590,838 (440,475)
------------ ------------
Net cash used in operating activities (168,516) (57,970)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to officers - (70,221)
Purchase of property and equipment (449,123) (2,219)
------------ ------------
Net cash used in investing activities (449,123) (72,440)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Book overdraft (11,735) 26,526
Principal payments on notes payable (18,167) (75,666)
Principal payments on capital lease obligations (21,151) (23,165)
Proceeds from issuance of preferred stock 956,605 -
------------ ------------
Net cash provided by (used in) financing activities 905,552 (72,305)
------------ ------------
Net increase (decrease) in cash 287,913 (202,715)
CASH, BEGINNING OF PERIOD 43,764 224,218
------------ ------------
CASH, END OF PERIOD $ 331,677 $ 21,503
============ ============
The accompanying notes are an integral part of these financial statements.
6
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
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2002 2001
------------ ------------
(unaudited) (unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 86,513 $ 27,959
============= =============
INCOME TAXES PAID $ 1,630 $ -
============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
During the six months ended June 30, 2002, the Company entered into the
following non-cash transactions:
o converted 12,000 shares of Preferred Stock into 20,000 shares of common
stock, reflecting an increase of $10,000 to additional paid-in capital
o issued 2,200 shares of Series C 5% Preferred Stock in connection with a
private placement
o acquired $6,449 of property and equipment under capital lease obligations
The accompanying notes are an integral part of these financial statements.
7
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
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NOTE 1 - NATURE OF BUSINESS
General
-------
New Century Companies, Inc., a California corporation, was incorporated
March 1996 and is located in Southern California. The Company (as defined
in Note 3) 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 approximately 40% to
50% of that 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.
Stock Split
-----------
On November 26, 2001, the Company authorized a one-for-10 reverse stock
split. All share and per share data have been retroactively restated to
reflect the split.
Merger with InternetMercado.com, Inc.
-------------------------------------
On May 25, 2001, the Company entered into a merger agreement (the
"Agreement") in which the Company was merged with InternetMercado.com, Inc.
("InternetMercado"). In accordance with the terms of the Agreement, the
following conversions occurred:
o Each issued and outstanding share of common stock of the new entity's
newly formed, wholly owned subsidiary was converted into one share of
the Company's common stock.
o Each share of the Company's common stock was converted into shares of
InternetMercado's common stock, par value $0.10 per share (the
"InternetMercado Shares") at the rate of 83.33 InternetMercado Share
for each of the Company's shares amounting to an aggregate 1,500,000
InternetMercado Shares.
The transaction has been accounted for as a reverse acquisition, whereby
the Company is the accounting acquirer, and the equity section has been
restated to reflect the Company's current capital structure.
Name Change
-----------
In June 2001, the Company's name was changed from InternetMercado.com, Inc.
to New Century Companies, Inc.
8
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 2 - GOING CONCERN
The financial information included in these financial statements is
unaudited, but, in the opinion of management, reflects all normal recurring
adjustments necessary for a fair presentation of the results for the
interim periods. The interim results of operations and cash flows are not
necessarily indicative of those results and cash flows for the entire year.
These financial statements should be read in conjunction with the financial
statements and notes to the financial statements contained in the Annual
Report on Form 10-KSB for the year ended December 31, 2001 of the Company.
In addition, the Company is in default in certain of its loans. (See Note
5.)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of New Century
Companies, Inc. and its wholly owned subsidiary, New Century
Remanufacturing (collectively, the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Interim Unaudited Financial Information
---------------------------------------
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management, are necessary to fairly state the Company's
financial position, the results of operations, and cash flows for the
periods presented. The results of operations for the six months ended June
30, 2002 are not necessarily indicative of results for the entire fiscal
year ending December 31, 2002.
The information with respect to the six months ended June 30, 2002 and 2001
is unaudited.
Revenue Recognition
-------------------
SERVICE REVENUE
Service revenues are billed and recognized in the period the services are
rendered.
METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS
The Company uses the percentage-of-completion method of accounting to
account for long-term contracts and, therefore, take 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.
9
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
-------------------
METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS (CONTINUED)
The amount of revenue recognized at the statement date is the portion of
the total contract price that the cost expended to date bears to the
anticipated final cost, based on current estimates of cost to complete. It
is not related to the progress billings to customers. Contract costs
include all materials, direct labor, machinery, subcontract costs, and
allocations of indirect overhead.
Because long-term contracts extend over one or more years, 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. Revenue earned on contracts in progress in
excess of billings (underbillings) is classified as a current asset.
Amounts billed in excess of revenue earned (overbillings) are classified as
a current liability.
Inventory
---------
Inventory is comprised primarily of work in process and is valued at the
lower of cost (first-in, first-out method) or market. Cost components
include material, direct labor, machinery, subcontracts, and allocations of
indirect overhead.
Income Taxes
------------
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." Deferred income taxes are provided on a liability method, whereby
deferred tax assets are recognized for deductible temporary differences,
and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion of all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
10
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
------------
As of April 30, 2001, the Company's federal filing status was changed from
"S" corporation to "C" corporation status. Under its "S" corporation
status, any profits or losses in the Company were passed on to its
shareholders and were not taxed at the corporate level. Taxes recorded on
the accompanying financial statements are only those for the period from
May 1, 2001 through June 30, 2002 and may not be indicative of future tax
provisions.
The pro forma effects of taxes as if the Company had been taxed as a "C"
corporation during the six months ended June 30, 2002 and 2001 would not
have an effect on pro forma basic and diluted loss per share as a full
valuation allowance was made on the deferred tax benefit.
Loss per Share
--------------
Loss per share is presented according to SFAS No. 128, "Earnings Per
Share." Basic loss per share excludes dilution and is computed by dividing
net loss available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted loss per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. The
components of basic and diluted loss per share for the six months ended
June 30, 2002 and 2001 were as follows:
2002 2001
---------- ----------
(unaudited) (unaudited)
Numerator
Net loss $ (683,880) $ (129,283)
========== ==========
Denominator
Weighted-average number of common shares
outstanding during the period 5,738,495 4,468,693
Assumed exercised stock options and
warrants outstanding * -
Assumed conversion of cumulative, convertible
Series B and C Preferred Stock * -
---------- ----------
COMMON STOCK AND COMMON STOCK
EQUIVALENTS USED FOR DILUTED
INCOME PER SHARE 5,738,495 4,468,693
========== ==========
* The effect of outstanding stock options and preferred stock is not
included as the result would be anti-dilutive.
11
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
-----------------
Certain amounts included in the prior period financial statements have been
reclassified to conform with the current year presentation. Such
reclassification did not have any effect on reported net loss.
Estimates
---------
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
Recent Issued Accounting Pronouncement
--------------------------------------
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates,
clarifies, and simplifies existing accounting pronouncements. This
statement rescinds SFAS No. 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the
criteria in APB No. 30 will now be used to classify those gains and losses.
SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has
been rescinded. SFAS No. 44 has been rescinded as it is no longer
necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-lease
transactions. This statement also makes technical corrections to existing
pronouncements. While those corrections are not substantive in nature, in
some instances, they may change accounting practice. The Company does not
expect adoption of SFAS No. 145 to have a material impact, if any, on its
financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146 " Accounting for Costs
Associated with exit or Disposal Activities." This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred. Under Issue 94-3 a liability for an exit cost as
defined, was recognized at the date of an entity's commitment to an exit
plan. This statement will not have a material impact on the Company's
financial statements.
12
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 4 - CONTRACTS IN PROGRESS
Contracts in progress as of June 30, 2002 were as follows:
Cumulative costs to date $ 2,658,652
Cumulative gross profit to date 2,353,040
----------------
Cumulative revenue earned 5,011,692
Less progress billings to date 6,248,075
----------------
NET OVERBILLINGS $ (1,236,383)
================
The following is included in the accompanying balance sheet under these
captions as of June 30, 2002:
Costs and estimated earnings on contracts in
progress in excess of billings $ 276,039
Billings in excess of costs and estimated
earnings on contracts in progress 1,512,422
----------------
NET OVERBILLINGS $ (1,236,383)
================
NOTE 5 - NOTES PAYABLE
As of June 30, 2002, notes payable from Citibank, which are secured by all
of the Company's assets and personal guarantees of the shareholders,
amounting to $136,624 and the unsecured note payable with detachable
warrants amounting to $250,000 were in default. The Company is currently
negotiating their renewal. There is not a guarantee that the Company will
be able to benefit from any favorable renewal terms.
NOTE 6 - LOANS TO SHAREHOLDERS
As of June 30, 2002, the Company had loans to certain of its shareholders
for $433,345, which bear interest at 5% per annum. There is not a specified
maturity date, and it is the Company's and shareholders' intention not to
reduce the balance before December 31, 2002. For the six months ended June
30, 2002, total interest income from loans to shareholders was $10,834.
13
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 7 - SHAREHOLDERS' EQUITY
Series B Preferred Stock
------------------------
The Company has 15,000,000 authorized shares of cumulative, convertible
Series B Preferred Stock. The preferred B shares have a cumulative dividend
of $1.25 per share, which is payable on a semi-annual basis, are
convertible into 1.667 shares of the Company's common stock, and do not
have any voting rights. As of June 30, 2002, 38,900 shares were issued and
outstanding, and accumulated dividends amounted to $56,125 for the three
months ended June 30, 2002. Cumulative dividends attributable to the
Company since May 25, 2001 were $449,248. During the six months ended June
30, 2002, 12,000 preferred shares were converted into 20,000 common shares.
Series C Preferred Stock
------------------------
In March 2002, the Company authorized 75,000 shares of 5%, cumulative,
convertible Series C Preferred Stock. The preferred C shares have a
cumulative dividend of $1.25 per share, which is payable on a semi-annual
basis on June and December of each year to holders of record on November 30
and May 31, are convertible into 16.667 shares of the Company's common
stock, and do not have any voting rights. Upon liquidation of the Company,
the Series C preferred shareholder are entitled to a liquidation preference
of $25 per share, which is superior to the claim of any other shareholder.
The Series C preferred shareholders are not entitled to any distributions
above their liquidation preference. As of June 30, 2002, there were not any
shareholders of record entitled to dividends. .
As of June 30, 2002, the Company completed the following transactions:
o Issued 44,000 shares valued at $25 per share for $1,100,000 in cash
o Issued 2,200 shares in exchange for services rendered by the placement
agent in connection with a private placement
As the Series C Preferred Stock was issued with a conversion feature at a
discount to the trading value of the Company's common stock, the Company
has recorded a deemed dividend to its preferred shareholders of $308,029.
The deemed dividend is reflected as an increase in the net loss
attributable to common shareholders on the accompanying consolidated
statements of operations.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company received a $1,000,000 subscription receivable from employees in
exchange for 4,000,000 shares of the Company's common stock. The notes
receivable were extended during May 2002 for one year at an interest rate
of 10% per annum.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
On May 25, 2001, the Registrant acquired all of the outstanding capital
stock of New Century Remanufacturing, Inc. in exchange for 1,500,000 shares of
the Registrant's common stock. For accounting purposes, this acquisition will be
treated as a recapitalization of New Century Remanufacturing, Inc. with New
Century Remanufacturing, Inc. as the acquirer. Therefore following is a
discussion of the results of operations of New Century Remanufacturing, Inc.
RESULTS OF OPERATIONS
Three-month period Ended June 30, 2002 compared to the Three-month period ended
--------------------------------------------------------------------------------
June 30, 2001
-------------
REVENUE AND GROSS PROFIT MARGIN
The Company generated revenues of $2,227,233 for the three-month period
ended June 30, 2002, which was a $163,774 or 8% increase from $2,063,459 in the
corresponding period in 2001. The increase is a result of an increase in
customer's orders.
There was a slight decrease of 2% in Gross profit for the three-month
period ended June 30, 2002. Gross Profit was $402,236 or 18% of revenue,
compared to $404,110 or 20%, in the corresponding period in 2001.
Interest expense for the three-month period ended June 31, 2002,
increased to $94,301, compared to $17,626 for the period ended June 30, 2001.
This increase is the result of amortization of the discount relating to the
warrants on a short-term loan obtained in December 2001.
OPERATING EXPENSES
Operating expenses increased by $113,958 or 32%, from $351,373 for the
three month period ended June 30, 2001 to $465,331 for the corresponding period
in 2002. This increase is the result of costs associated to our move to a larger
facility in February of 2002.
NET INCOME/LOSS AND EARNINGS PER SHARE
Net loss was $146,762 for the three-month period ended June 30, 2002
compared to a net loss of $27,148 for the corresponding period in 2001. The
increase in net loss is attributable to costs associated with the expansion of
our operations and the cost incurred by moving to a larger facility.
Loss per share for the three-month period ended June 30, 2002 increased
by $0.08, from $0.01 for the three month period ended June 30, 2001 to $0.09 for
the corresponding period in 2002. The increase was attributable to a discount on
deemed dividends of $308,029 related to private placement of our Series C 5%
Convertible Preferred Shares.
15
Six-month period Ended June 30, 2002 compared to the Six-month period ended June
--------------------------------------------------------------------------------
30, 2001
--------
REVENUE AND GROSS PROFIT MARGIN
For the six-month period ended June 30, 2002, total revenues were
$3,571,043, which was an increase of $333,647 or 10% from revenues of $3,237,396
in the corresponding period in 2001. The increase is the result of an increase
in customer's orders.
For the six-month period ended June 30, 2002, gross profit was $696,406
or 19% of revenue, compared to $443,012 in the corresponding period in 2001, an
increase by $253,394. The increase is the result of improved productivity in
manufacturing.
Interest expense for the six-month period ended June 31, 2002,
increased by $134,349. This increase is the result of amortization of the
discount relating to the warrants on a short-term loan obtained in December
2001.
OPERATING EXPENSES
For the six-month period ended June 30, 2002 operating expenses
increased by $382,881 or 79%. This increase is related to our move to a larger
facility on February 2002.
NET INCOME/LOSS AND EARNING PER SHARE
For the six-month period ended June 30, 2002, we had a net loss of
$319,726 compared to a net loss of $129,283 for the corresponding period in
2001. The increase in net loss is attributable to costs associated with the
expansion of our operations and the cost incurred by moving to a larger
facility.
For the six-month period ended June 30, 2002, loss per share increase
by $0.09 from $0.03 for the six-month period ended June 30, 2001 to $0.12 for
the corresponding period in 2002. The increase in loss per share is attributable
to a discount on deemed dividends of $308,029 related to private placement of
our Series C 5% Convertible Preferred Shares.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund capital expenditures. We have
financed our working capital requirements through a combination of internally
generated cash, short-term loans and private placements.
Cash and cash equivalents were $331,677 as of June 30, 2002. This
represents an increase of $310,174 from June 30, 2001. The increase was
primarily due to proceeds
from financing activities.
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We received $905,552 from the sale of 44,000 shares of Series C 5%
Convertible Preferred Shares in a private placement. These proceeds were used to
purchase property and equipment and for working capital.
We intend to pursue external financing sources to meet the cash
requirement of ongoing operations. Management is currently seeking to rise
additional funds in the form of a equity or debt securities offering, or a
combination thereof. However, there is can be no guarantee that we will raise
sufficient capital to execute our business plan. To the extent that we are
unable to raise sufficient capital, our business plan will require substantial
modified and our operations may be curtailed. These conditions raise substantial
doubt about our ability to continue as a going concern. Continuation as a going
concern is dependent upon our ability to ultimately attain profitable
operations, generate sufficient cash flow to meet obligations, and obtain
additional financing as may be required.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB
STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. SFAS No. 145 updates, clarifies, and simplifies existing accounting
pronouncements. This statement rescinds SFAS No. 4, which required all gains and
losses from extinguishments of debt to be aggregated and if material, classified
as an extraordinary item, net of related income tax effect. As a result, the
criteria in APB No. 30 will now be used to classify those gains and losses. SFAS
No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been
rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No.
145 amends SFAS No. 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-lease transactions. This statement also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
The Company does not expect adoption of SFAS No. 145 to have a material impact,
if any, on its financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146 " Accounting for Costs
Associated with exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3 a
liability for an exit cost as defined, was recognized at the date of an entity's
commitment to an exit plan. This statement will not have a material impact on
the Company's financial statements.
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CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial conditions and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of financial statements require management to
make estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses and disclosures on the date of the financial
statements. On an on-going basis, we evaluate our estimates, including, but not
limited to, those related to revenue recognition. We use authoritative
pronouncements, historical experience and other assumptions as the basis for
making judgements. Actual results could differ from those estimates. We believe
that the following critical accounting policies affect our more significant
judgments and estimates in the preparation of our consolidated financial
statements.
Revenue Recognition
SERVICE REVENUE
Service revenues are billed and recognized in the period the services
are rendered.
METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS
The Company uses the percentage-of-completion method of accounting to
account for long-term contracts and, therefore, take into account the
cost, estimated earnings, and revenue to date on fixed-fee contracts
not yet completed. The percentage-of-completion method is used because
management considers total cost to be the best available measure of
progress on the contracts. Because of inherent uncertainties in
estimating costs, it is at least reasonably possible that the estimates
used will change within the near term.
The amount of revenue recognized at the statement date is the portion
of the total contract price that the cost expended to date bears to the
anticipated final cost, based on current estimates of cost to complete.
It is not related to the progress billings to customers. Contract costs
include all materials, direct labor, machinery, subcontract costs, and
allocations of indirect overhead.
Because long-term contracts extend over one or more years, 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. Revenue earned on contracts in progress
in excess of billings (underbillings) is classified as a current asset.
Amounts billed in excess of revenue earned (overbillings) are
classified as a current liability.
INFLATION AND CHANGING PRICES
The Company does not foresee any adverse effects on its earnings as a
result of inflation or changing prices.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds.
In June 2002 the Company issued 44,000 shares of Series C 5%
Convertible Preferred Stock to certain accredited investors for an aggregate
amount of $1,100,000. The shares were issued in a private placement pursuant to
an exemption provided by Section 4(2). The net proceeds of $905,552 were used
for working capital.
In connection with the closing of the private placement of Series C 5%
convertible Preferred Stock, the Company issued 2,200 shares of Series C 5%
convertible Preferred Stock to West America Securities Corp. as payment for
their services as Placement Agent.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Sarbanes Oxley Certification
(b) Reports on Form 8-K:
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: August 14, 2002
NEW CENTURY COMPANIES, INC.
By: /s/ David Duquette
--------------------------------
Name: David Duquette
Title: Chairman, President and Director
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