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:
March 31, 2002 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)
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 March 31, 2002 is 4,960,527.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
---
NEW CENTURY COMPANIES, INC.
INDEX TO FORM 10-QSB
March 31, 2002
ITEM 1. FINANCIAL STATEMENTS
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONTENTS
March 31, 2002 (unaudited)
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Page
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 1 - 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4 - 5
Notes to Consolidated Financial Statements 6 - 11
2
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 2002 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 16,670
Contracts receivable 347,563
Costs in excess of billings on contracts in progress 155,664
Inventory 1,498,618
Prepaid expenses and other current assets 25,716
----------
Total current assets 2,044,231
Property and equipment, net 771,291
Deposits 259,177
----------
Total assets $3,074,699
==========
The accompanying notes are an integral part of these financial statements.
3
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 2002 (unaudited)
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Book overdraft $ 96,788
Notes payable, net of discount of $53,000 419,910
Current portion of capital lease obligations 51,237
Accounts payable 1,291,039
Accrued expenses 271,559
Billings in excess of costs and estimated earnings on
contracts in progress 1,167,821
-----------
Total current liabilities 3,298,354
Capital lease obligations, net of current portion 35,889
-----------
Total liabilities 3,334,243
-----------
Commitments and contingencies
Shareholders' deficit
Cumulative, convertible, Series B preferred stock, $1 par value
15,000,000 shares authorized
44,900 shares issued and outstanding 44,900
Common stock, $0.10 par value
6,000,000 shares authorized
4,960,527 shares issued and outstanding 496,053
Additional paid-in capital 1,420,927
Treasury stock, at cost, 7,750 shares (7,750)
Subscription receivable (1,087,500)
Loans to shareholders (433,345)
Deferred consulting fees (41,000)
Accumulated deficit (651,829)
-----------
Total shareholders' deficit (259,544)
-----------
Total liabilities and shareholders' deficit $ 3,074,699
===========
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 Months Ended March 31,
===============================================================================
2002 2001
---------- ----------
(unaudited) (unaudited)
Net sales $1,343,810 $1,200,937
Contract costs 1,049,631 1,135,035
---------- ----------
Gross profit 294,179 65,902
Operating expenses 397,999 130,704
---------- ----------
Loss from operations (103,820) (64,802)
Other expense
Interest expense, net (67,714) (10,033)
---------- ----------
Loss before provision for income taxes (171,534) (74,835)
Provision for income taxes 1,630 -
---------- ----------
Net loss (173,164) (74,835)
Preferred stock dividends 56,125 -
---------- ----------
Net loss attributable to common shareholders $ (229,289) $ (74,835)
========== ==========
Basic and diluted loss attributable to common shareholders
per common share $ (0.05) $ (0.04)
========== ==========
Weighted-average number of common shares used to
compute basic and diluted loss attributable to common
shareholders per share 4,942,749 1,761,156
========== ==========
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 Three Months Ended March 31,
--------------------------------------------------------------------------------
2002 2001
--------- ---------
(unaudited) (unaudited)
Cash flows from operating activities
Net loss $(173,164) $ (74,835)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization of property and equipment 57,448 45,218
Amortization of consulting fees 114,031 -
Amortization of discount on notes payable 53,000 -
Interest income (17,916) -
(Increase) decrease in
Contracts receivable (41,387) 191,500
Cost in excess of billings on contracts in progress (49,110) 190
Inventory (305,414) (202,078)
Prepaid expenses and other current assets 90,133 24,324
Increase (decrease) in
Accounts payable 193,566 272,536
Accrued expenses (43,826) (73,210)
Billings in excess of costs and estimated earnings on
contracts in progress 246,237 (284,558)
--------- ---------
Net cash provided by (used in) operating activities 123,598 (100,913)
--------- ---------
Cash flows from investing activities
Loans to officers - (56,721)
Purchases of property and equipment (121,425) -
--------- ---------
Net cash used in investing activities (121,425) (56,721)
--------- ---------
Cash flows from financing activities
Bank overdraft 8,709 5,865
Payments on notes payable (24,102) (29,333)
Payments on capital lease obligations (13,874) (14,767)
--------- ---------
Net cash used in financing activities (29,267) (38,235)
--------- ---------
Net decrease in cash (27,094) (195,869)
Cash, beginning of period 43,764 224,218
--------- ---------
Cash, end of period $ 16,670 $ 28,349
========= =========
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 Three Months Ended March 31,
--------------------------------------------------------------------------------
2002 2001
------- ----------
(unaudited) (unaudited)
Supplemental disclosures of cash flow information
Interest paid $14,713 $ 10,033
======= ==========
Income taxes paid $ 1,630 $ -
======= ==========
Supplemental schedule of non-cash financing activities
During the three months ended March 31, 2002, the Company entered into the
following non-cash transactions:
.. 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
.. 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
March 31, 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:
. 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.
. 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
March 31, 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.
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 three months ended
March 31, 2002 are not necessarily indicative of results for the entire
fiscal year ending December 31, 2002.
The information with respect to the three months ended March 31, 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
March 31, 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
March 31, 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 March 31, 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 three months ended March 31, 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 three months ended
March 31, 2002 and 2001 were as follows:
2002 2001
---------- ----------
(unaudited) (unaudited)
Numerator
Net loss $ (173,164) $ (74,835)
========== ==========
Denominator
Weighted-average number of common shares
outstanding during the period 4,942,749 1,761,156
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 4,942,749 1,761,156
========== ==========
* 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
March 31, 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.
NOTE 4 - CONTRACTS IN PROGRESS
Contracts in progress as of March 31, 2002 were as follows:
Cumulative costs to date $ 1,402,940
Cumulative gross profit to date 1,370,428
-----------
Cumulative revenue earned 2,773,368
Less progress billings to date 3,785,525
-----------
Net overbillings $(1,012,157)
===========
12
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 (unaudited)
--------------------------------------------------------------------------------
NOTE 4 - CONTRACTS IN PROGRESS (Continued)
The following is included in the accompanying balance sheet under these
captions as of March 31, 2002:
Costs and estimated earnings on contracts in
progress in excess of billings $ 155,664
Billings in excess of costs and estimated earnings
on contracts in progress 1,167,821
-----------
Net overbillings $(1,012,157)
===========
NOTE 5 - LOANS TO SHAREHOLDERS
As of March 31, 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 three months ended
March 31, 2002 and 2001, total interest income from loans to shareholders
was $5,417 and $5,188, respectively.
NOTE 6 - SHAREHOLDERS' EQUITY
The Company has 15,000,000 authorized shares of cumulative, convertible
Series B preferred stock. The preferred shares have a cumulative dividend
of $1.25 per share, which is payable on a semi-annual basis, are
convertible into 1.67 shares of the Company's common stock, and do not have
any voting rights. As of March 31, 2002, 44,900 shares were issued and
outstanding, and accumulated dividends amounted to $56,125 for the three
months ended March 31, 2002. Cumulative dividends attributable to the
Company since May 25, 2001 were $449,248. During the three months ended
March 31, 2002, 12,000 preferred shares were converted into 20,000 common
shares.
NOTE 7 - 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 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
an increase in the interest rate to 10% per annum.
13
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.
PLAN OF OPERATIONS
The loss of New Century Remanufacturing for the three-month period ended
March 31, 2002 was higher than March 31, 2001 as a result of business
interruption due to management decision to move in to a larger facility. 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 $1,343,810 for the three-month ended
March 31, 2002, which was a $142,873 or 11% increase from $1,200,937 in the
corresponding period in 2001. This increase was primarily generated by shipments
from its back log of sales.
Gross profit for the three-month period ended March 31, 2002, was $294,179
or 22% of revenue, compared to $65,902, in the corresponding period in 2001, an
increased by $228,277. The increase was primarily due to improved productivity
in manufacturing.
The accompanying notes are an integral part of these financial statements.
14
Interest expense for the three-month period ended March 31, 2002, increased
to $67,714, compared to $10,033 for the period ended March 31, 2001, primarily
due to amortization of the discount relating to the warrants on a short term
loan obtained in December 2001.
OPERATING EXPENSES
Operating expenses increased by $267,295 or 205%, from $130,704 for the
three month period ended March 31, 2001 to $397,999 for the corresponding period
in 2002. This was due primarily to costs associated to the company's transfer to
a larger facility and expenses associated with the May 2001 merger.
NET INCOME/LOSS AND EARNING PER SHARE
Net loss was $173,164 for the three-month period ended March 31, 2002
compared to a net loss of $74,835 for the corresponding period in 2001. The
increase was attributable to costs associated with the May 2001 merger and the
cost incurred by moving to a new location.
Loss per share for the three-month period ended March 31, 2002 increase by
$0.01, from $0.04 for the three month period ended March 31, 2001 to $0.05 for
the corresponding period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in cash for the three month period ended March 31, 2002 was
$27,094, from $28,349 in March 31, 2001 to $16,670 in period ended March 31,
2001.
The Company used the $123,598 cash generated from operating activities to
pay the leasehold improvements relating to the new warehouse, new office space
and the machine moving expenses incurred on the transfer to the new facility and
the cost attributable with the May 2001 merger.
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
ultimately attain profitable operations, generate sufficient cash flow to meet
its obligations, and obtain additional financing as may be required.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development, and/or the normal operation of long-lived assets, except for
certain obligations of lessees. This statement is not applicable to the
Company.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
statement replaces SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, the accounting and reporting
provisions of APB No. 30, Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business, and amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. The adoption of SFAS No.
144 has not had a material impact, if any, on its financial position or results
of operations.
The accompanying notes are an integral part of these financial statements.
15
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.
This statement is not applicable to the Company.
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 accompanying notes are an integral part of these financial statements.
16
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.
The accompanying notes are an integral part of these financial statements.
17
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.
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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: May 16, 2002
NEW CENTURY COMPANIES, INC.
By: /s/ David Duquette
------------------------------------
Name: David Duquette
Title: Chairman, President and Director
The accompanying notes are an integral part of these financial statements.
19