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, 2001 0-7722
NEW CENTURY COMPANIES, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 061034587
--------- ---------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
9515 Sorensen Avenue
Santa Fe Springs, CA 90670
--------------------------------------------------------------------------------
(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, 2001 is 46,881,909.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
---
ASIA FIBER HOLDINGS LTD.
INDEX TO FORM 10-QSB
June 30, 2001
PART I. Financial Information Page #
Item 1 Financial Statements - 1
Condensed Consolidated Balance Sheet as of June 30, 2-3
2001 (Unaudited) and December 31, 2000
Condensed Consolidated Income Statements (Unaudited) 4
for the three months ended June 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows 5
(Unaudited) for the three months ended June 30, 2001
and 2000
Notes to Financial Statements 7-12
Item 2. Management's Discussion and Analysis of Financial 13-15
Condition and Results of Operation
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 (UNAUDITED)
================================================================================
ASSETS
CURRENT ASSETS
Cash $ 21,503
Contracts receivable 381,800
Costs in excess of billings on contracts in progress 35,286
Inventory 752,809
Prepaid expenses and other current assets 4,408
Deferred tax assets 28,256
----------
Total current assets 1,224,062
PROPERTY AND EQUIPMENT, net 805,871
LOANS TO SHAREHOLDERS 428,545
DEPOSITS 9,178
----------
TOTAL ASSETS $2,467,656
==========
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 (UNAUDITED)
================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft $ 42,164
Current portion of notes payable 313,458
Current portion of capital lease obligations 39,686
Accounts payable 1,178,726
Accrued expenses 278,485
Billings in excess of costs on contracts in progress 409,330
-----------
Total current liabilities 2,261,849
NOTES PAYABLE, net of current portion 34,722
CAPITAL LEASE OBLIGATIONS, net of current portion 73,400
-----------
Total liabilities 2,369,971
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative, convertible Series B preferred stock, $1 par value
15,000,000 shares authorized
100,900 shares issued and outstanding 100,900
Common stock, $0.10 par value
50,000,000 shares authorized
45,959,418 shares issued
46,881,909 shares outstanding 1,084,350
Treasury stock at cost
77,509 shares held (7,750)
Subscription receivable (1,087,500)
Retained earnings 7,685
-----------
Total stockholders' equity 97,685
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,467,656
===========
The accompanying notes are an integral part of these financial statements.
3
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
================================================================================
2001 2000
----------- -----------
(unaudited) (unaudited)
NET SALES $ 2,063,459 $ 1,750,628
CONTRACT COSTS 1,659,349 1,486,055
----------- -----------
GROSS PROFIT 404,110 264,573
OPERATING EXPENSES 351,373 192,420
----------- -----------
INCOME FROM OPERATIONS 52,737 72,153
OTHER EXPENSE
Interest expense 17,626 10,641
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 35,111 61,512
PROVISION FOR INCOME TAXES 62,259 -
----------- -----------
NET INCOME (LOSS) $ (27,148) $ 61,512
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE $(0.001) $0.004
=========== ===========
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES USED TO
COMPUTE BASIC AND DILUTED EARNINGS (LOSS) PER SHARE 27,055,374 15,000,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30,
================================================================================
2001 2000
--------- ---------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (27,148) $ 61,512
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 55,483 9,600
(Increase) decrease in
Contract receivable (314,300) 468,775
Cost in excess of billings on contracts in progress 56,664 (89,404)
Inventory 139,108 (392,113)
Prepaid expenses and other current assets (800) -
Deferred tax assets (28,256) -
Increase (decrease) in
Accounts payable 28,471 83,272
Accrued liabilities 267,183 (30,001)
Billings in excess of costs on contracts in progress (155,917) 18,466
--------- ---------
Net cash provided by operating activities 20,488 130,107
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to officers (13,500) (53,000)
Purchases of property and equipment (2,129) (9,899)
--------- ---------
Net cash used in investing activities (15,629) (62,899)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 20,661 -
Proceeds from note payable - 83,333
Payments on note payable (46,333) (20,833)
Payments on capital lease obligations (8,398) (92,129)
--------- ---------
Net cash used by financing activities (34,070) (29,629)
--------- ---------
Net increase (decrease) in cash (29,211) 37,579
CASH, BEGINNING OF PERIOD 29,211 169,455
--------- ---------
CASH, END OF PERIOD $ - $ 207,034
========= =========
The accompanying notes are an integral part of these financial statements.
5
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30,
================================================================================
2001 2000
---------- -----------
(unaudited) (unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $17,626 $10,641
========== ==========
INCOME TAXES PAID $ - $ -
========== ==========
The accompanying notes are an integral part of these financial statements.
6
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and June 30, 2001 (unaudited)
================================================================================
NOTE 1 - NATURE OF BUSINESS
Organization
------------
New Century Remanufacturing, Inc. ("Remanufacturing"), a California
corporation, was incorporated in March 1996 and is located in Southern
California. It is currently the subsidiary of New Century Companies, Inc.
("New Century"). 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 customer is approximately 40%
to 50% of that of a new machine.
Remanufacturing currently sells its services by direct sales and through a
network of machinery dealers across the Unites States. Its customers are
generally medium- to large-sized manufacturing companies where metal
cutting is an integral part of their business in various industries.
Remanufacturing grants credit to its customers, who are located
predominately in the western Unites States.
On May 25, 2001, Remanufacturing effected a merger, whereby Remanufacturing
was acquired by InternetMercado.com, Inc. ("InternetMercado") for
certain shares of stock. In connection with the merger, substantially all
of the assets and liabilities of InternetMercado were assigned or
transferred out of the Company, and the name was changed to New Century
Companies, Inc.
The transaction has been accounted for as a reverse acquisition, whereby
the results of operations have been retroactively restated to reflect those
of New Century, and the equity section of New Century was restated to
reflect the capital structure of the Company.
Merger
------
On May 25, 2001, InternetMercado entered in to a merger agreement (the
"Agreement") in which the Company was merged with Remanufacturing. At the
time of the merger, the authorized capital of Remanufacturing consisted of
1,000,000 shares of capital stock, $1 par value per share, of which 18,000
shares were issued and outstanding.
In accordance with the terms of the Agreement, the following conversions
occurred:
. Each issued and outstanding share of common stock of InternetMercado's
newly formed, wholly owned subsidiary was converted into one share of
Remanufacturing's common stock.
. Each Remanufacturing's share converted into shares of the Company's
common stock, par value $0.10 per share (the "Company Shares"), at the
rate of 833.3333 Company Share for each Remanufacturing share amounting
to an aggregate 15,000,000 Company Shares.
7
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and June 30, 2001 (unaudited)
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of New Century
and its wholly owned subsidiary, New Century Remanufacturing (collectively,
the "Company"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Going Concern Issues
--------------------
The Company has received a report on its financial statements for the year
ended March 31, 2000 from its independent auditors that includes an
explanatory paragraph describing the Company's uncertainty to continue as a
going concern. These financial statements contemplate the ability to
continue as such and do not include any adjustments that might result from
this uncertainty.
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 three months ended
June 30, 2001 are not necessarily indicative of results for the entire
fiscal year ending March 31, 2002.
The information with respect to the three months ended June 30, 2001 and
2000 is unaudited.
Method of Accounting for Long-Term Contracts
--------------------------------------------
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting and, therefore, take into
account the cost, estimated earnings, and revenue to date on fixed-fee
contracts not yet completed.
This 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.
8
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and June 30, 2001 (unaudited)
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Method of Accounting for Long-Term Contracts (Continued)
--------------------------------------------
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) or market. Cost components include
material, direct labor, machinery, subcontracts and allocations of indirect
overhead.
Fair Value of Financial Instruments
-----------------------------------
The Company measures financial assets and liabilities in accordance with
generally accepted accounting principles. For the Company's financial
instruments, including cash, accounts receivable, accounts payable, and
accrued expenses, the carrying amounts approximate fair value due to their
short maturities. The amounts shown for notes payable and capital lease
obligations also approximate fair value because current interest rates
offered to the Company for debt of similar maturities are substantially the
same.
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.
9
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and June 30, 2001 (unaudited)
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
------------
As of April 30, 2001, New Century changed its federal filing status 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, 2001 (approximately $167,000 of taxable
income) 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 both quarters are as follows:
2001 2000
-------- -------
Income before provision for income taxes, as reported 35,111 61,512
Pro-forma provision for income taxes 14,000 25,000
-------- -------
Pro-forma net income 21,111 36,512
======= =======
Pro-forma basic and diluted earnings per share $ 0.001 $ 0.002
======= =======
Earnings (Loss) per Share
-------------------------
Earnings (loss) per share is presented according to SFAS No. 128, "Earnings
Per Share." Basic earnings (loss) per share excludes dilution and is
computed by dividing net income (loss) available to common stockholders by
the weighted average number of common shares outstanding for the period.
Diluted earnings (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 or resulted from issuance of
common stock that then share in earnings. SFAS No. 128 also requires dual
presentation of basic and diluted earnings (loss) per share on the face of
the operations statements and a reconciliation of the numerator and
denominator of the basic earnings (loss) per share computation to the
numerator and denominator of the diluted earnings (loss) per share
computation.
The components of basic and diluted earnings (loss) per share for the three
months ended June 30, 2001 and 2000 were as follows:
2001 2000
----------- -----------
(unaudited) (unaudited)
Numerator
Net income (loss) $ (27,148) $ 61,512
=========== ===========
Denominator
Weighted-average number of common shares
outstanding during the period 27,055,374 15,000,000
Assumed exercised stock options and
warrants outstanding * -
Assumed conversion of cumulative, convertible
Series B preferred stock * -
----------- -----------
COMMON STOCK AND COMMON STOCK
EQUIVALENTS USED FOR DILUTED
INCOME PER SHARE 27,055,374 15,000,000
=========== ===========
* The effect of outstanding stock options and preferred stock is not
included as the result would be anti-dilutive.
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and June 30, 2001 (unaudited)
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Pronouncements
---------------------------------------
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." This
statement addresses financial accounting and reporting for business
combinations and supersedes Accounting Principles Bulletin ("APB") Opinion
No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Pre-
Acquisition Contingencies of Purchased Enterprises." All business
combinations in the scope of this statement are to be accounted for using
one method, the purchase method. The provisions of this statement apply to
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method for those business combinations is prohibited.
This statement also applies to all business combinations accounted for
using the purchase method for which the date of acquisition is July 1, 2001
or later.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion
No. 17, "Intangible Assets." It addresses how intangible assets that are
acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in financial
statements upon their acquisition. This statement also addresses how
goodwill and other intangible assets should be accounted for after they
have been initially recognized in the financial statements. It is
effective for fiscal years beginning after December 15, 2001. Early
application is permitted for entities with fiscal years beginning after
March 15, 2001, provided that the first interim financial statements have
not been issued previously.
NOTE 3 - STOCKHOLDERS' DEFICIT
Preferred Stock
---------------
The Series B shares have a cumulative dividend of $1.25 per share on a
semi-annual basis, are convertible into 16.667 shares of the Company's
common stock, and have no voting rights.
11
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001 and June 30, 2001 (unaudited)
================================================================================
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company received $1,000,000 subscription receivable from employees in
exchange for 4,000,000 shares of the Company's common stock. The notes
bear interest at 6% per annum. The principal and accrued interest are
payable in May 2002, with an option to extend the due date for one year in
return for increase in interest rate to 10% per annum.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
On May 25, 2001, the Registrant acquired all of the outstanding capital
stock of New Century Remanufacturing, Inc. in exchange for 15,000,000 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.
PLAN OF OPERATIONS
The earnings of New Century Remanufacturing for the three month period
ended June 30, 2001 was negative as a result of management's strategy to invest
in research and development for the development of new projects and additional
costs associated with the merger. The goal of these expenditures was to position
New Century as a leading manufacturer and remanufacturer of large horizontal and
vertical turning machines. New Century has completed the majority of this
current development effort and expects limited resources to be devoted to this
area in the next fiscal year.
The Company's current strategy is to expand its customer sales base with
its present line of machine products. Plans for expansion are expected to be
funded through current working capital from ongoing sales. However, significant
growth will require additional funds in the form of debt or equity, or a
combination thereof. However, there can be no assurance these funds will be
available.
Our growth strategy also includes strategic acquisition in addition to
growing its current business. A significant acquisition will require additional
financing. There can be no assurance that the Company can obtain such
financing.
RESULTS OF OPERATIONS
REVENUE AND GROSS PROFIT MARGIN
The Company generated revenues of $2,063,459 for the three-month ended June
30, 2001, which was a $312,831 or 18% increase from $1,750,628 in the
corresponding period in 2000. This increase was primarily generated by its
advertising and sales program.
Gross profit for the three-month period ended June 30, 2001, was $404,110
or 20% of revenue, compared to $264,573, in the corresponding period in 2000,
increase by 5% of revenue. This increase was primarily due to an improvement in
its sales program and cost containment strategies.
Interest expense for the three-month period ended June 30, 2001, increased
to $17,626, compared to $10,641, period ended June 30, 2000, primarily due to an
increase in debt outstanding
13
OPERATING EXPENSES
Operating expenses increased by $158,953 or 83% to $351,373 for the three-
month period ended June 30, 2001 from $192,420 for corresponding period in year
2000. This was due primarily to additional costs associated with the merger
and accounting and legal fees.
NET INCOME/LOSS AND EARNING PER SHARES
Net loss was $27,148 for the three-month period ended June 30, 2001
compared to net income of $61,512 for the corresponding period in 2000. This
increase was attributable to increased operating expenses.
Earning/loss per shares for the three-month period ended June 30, 2001
decreased by $0.005 to $(0.001), as compared to $0.004 for the corresponding
period in year 2000
LIQUIDITY AND CAPITAL RESOURCES
Net cash received in the operations of the Company were $20,488 as of June
30, 2001. This represents a decrease from the corresponding period in 2000. The
decrease is due to losses incurred by the Company during the three-month
period.
The Company used the cash received from operating activities for working
capital. In connection with the Merger, the Company issued 15,000,00 shares of
common stock in exchange for all of the outstanding stock of New Century
Remanufacturing. The Company intends to pursue external financing sources to
meet the cash requirement of its ongoing operations. Management is currently
seeking to raise additional funding in the form of equity or debt, or a
combination thereof. However, there is can be no guarantee that it will raise
sufficient capital to execute its business plan. To the extent that the Company
is unable to raise sufficient capital, the Company's business plan will be
required to be substantially modified and its operations curtailed. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. the Company's continuation as a going concern is dependent upon
its ability to
14
ultimately attain profitable operations, generate sufficient cash flow to meet
its obligations, and obtain additional financing as may be required.
INFLATION AND CHANGING PRICES
The Company does not foresee any adverse effects on its earnings as a
result of inflation or changing prices.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
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:
None
(b) Reports on Form 8-K:
None.
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 15, 2001
NEW CENTURY COMPANIES, INC.
By: /s/ David Duquette
----------------------------------
Name: David Duquette
Title: Chairman, President and Director