<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549

                                   ----------

                                  FORM 10-KSB/A

(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934.
For the fiscal year ended December 31, 2001
                          -----------------
OR

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
     OF 1934.
For the transition period from            to
                               ----------    -----------

                   Commission file Number     0-9459
                                         ----------------



                           NEW CENTURY COMPANIES, INC.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)


<TABLE>
<S>                                                               <C>
                        Delaware                                                      06-1034587
---------------------------------------------------------         ----------------------------------------------------
     (State or other Jurisdiction of Incorporation)                      (I.R.S. Employer Identification No.)

               9835 Santa Fe Springs Road
                  Santa Fe Springs, CA                                                   90670
---------------------------------------------------------         ----------------------------------------------------
        (Address of Principal Executive Offices)                                      (Zip Code)
</TABLE>


                                 (562) 906-8455
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

<TABLE>
<CAPTION>
              Title of Each Class                                                   Name of Each Exchange
              -------------------                                                    on Which Registered
                                                                                     -------------------
<S>                                                                      <C>
-------------------------------------------------                        ---------------------------------------------

-------------------------------------------------                        ---------------------------------------------
</TABLE>

     Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, par value $0.10
--------------------------------------------------------------------------------
                                (Title of Class)


--------------------------------------------------------------------------------
                                (Title of Class)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.

Yes  X   No
    ---     ---

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-SKB. [X]

     State issuer's revenue for its most recent fiscal year $6,138,829.
                                                             ---------

     State the aggregate market value of the voting and non-voting common equity
held by no-affiliates computed by reference to the price at which the common
equity as sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days (See definition of affiliate in Rule
12b-2 of the Exchange Act.). $13,099,299.
                              ----------

     Note. If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

     Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes  X   No
    ---     ---

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     State the number of share outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of April 10, 2001 there
                                                  --------------------------
were 5,038,192 shares of common stock issued and outstanding
------------------------------------------------------------

     Transitional Small Business Disclosure Format (check one):
Yes      No  X
    ---     ---

<PAGE>

                                     PART I

ITEM 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

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

OVERVIEW

   On May 25, 2001, the Company entered into a plan of Reorganization and
Merger with New Century Remanufacturing, Inc. Immediately prior to the merger,
the Company had 50,000,000 shares authorized and 2,695,942 shares issued and
outstanding. Pursuant to the merger, all of the 1,800 outstanding shares of NCR
were exchanged for shares of the Company on a 1 to 833.33 basis or into
1,500,000 shares of common stock of the Company for a total of 4,195,942 shares
of common stock issued and outstanding. Immediately after the merger, all then
existing officers and directors of the Company resigned and the management of
NCR was elected and appointed to such positions; thereby effecting a change of
control. Although NCR became a wholly-owned subsidiary of the Company following
the transaction, because the transaction resulted in a change of control, the
transaction was recorded as a "reverse merger" whereby NCR was considered to be
the accounting acquirer of the Company.

   After the reverse merger the Company changed its name to New Century
Companies, Inc. The results of the Company previously filed in the past years
are not included herein. The related financial statements are the results of
operations for NCR.

Plan of Operations

   The earnings of New Century Companies for the year ended 2002 were negative
as a result of management's strategy of continued investment in research and
development of new projects and of the corporate expenses related to compliance
with the regulatory requirements of being a public company. 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. The
Company's growth strategy also includes strategic acquisitions in addition to
growing the current business. A significant acquisition will require additional
financing. There can be no assurance that the Company can obtain such financing
for the period ended December 31, 200  .

Restatement of 2001 Financial Statements

   The Company previously recorded its convertible, Series B preferred stock as
issued and outstanding. However, in accordance with the conversion terms of the
preferred stock, the shares were to automatically convert into shares of common
stock with the effectiveness of the registration statement, registering the
underlying shares. As such, the Company has restated its December 31, 2001
financial statements to correctly reflect the Series B preferred stock as
committed common shares.

   The resulting impact of this restatement on net loss attributable to common
shareholders is as follows:

<TABLE>
<CAPTION>
                                                                                  Amount   Per Share
                                                                                ---------  ---------
<S>                                                                             <C>        <C>
Net loss attributable to common shareholders, as previously reported.........   $(549,791)  $(0.16)
Adjustment to correct dividends on preferred shares previously recorded .....      71,125     0.02
                                                                                ---------   ------
Net loss attributable to common shareholders, as restated....................   $(478,666)  $(0.14)
                                                                                =========   ======
</TABLE>

   On December 21, 2001, the Company signed a promissory note agreement for
$215,000 for a deposit on the purchase of the building in which it operates.
This note payable was incorrectly excluded from its previously filed financial
statements. This transaction did not have any impact on the Company's reported
net loss for the year ended December 31, 2001.

   The effect on the Company's total assets and liabilities as of December 31,
2001 is as follows:

<TABLE>
<CAPTION>
                                        As Reported  Amount  As Restated
                                        ----------- -------- -----------
               <S>                      <C>         <C>      <C>
               Total assets...........  $2,707,673  $215,000 $2,922,673
               Total liabilities .....  $2,908,085  $215,000 $3,123,085
</TABLE>

Results Of Operations For the Period Ended December 31, 2002 Compared to
December 31, 2001.

   Revenues.  New Century generated revenues of $9,054,146 for the fiscal year
ended December 31, 2002, which was a $2,915,317 increase from $6,138,829 for
the fiscal year ending December 31, 2001. This increase was primarily a result
of increased selling efforts and sales to new industries such as the defense
and medical industries.

   Gross Profit.  Gross profit for the fiscal year ending December 31, 2002,
was $1,780,807 or 19.7% of revenues, compared to $1,004,241, or 16.4% in 2001,
an increase of 20%, primarily due to continued product development and research
and increased productivity.

   Net Loss.  Net operating loss increased to $1,760,601 for the fiscal year
ended December 31, 2002 compared to $478,666 for the fiscal year ended December
31, 2001 due to the non-recurring corporate expenses related to being a public
company, moving costs related to a new expanded production facility, increased
interest expense and the write-off of subscription receivables.

   Interest Expenses.  Interest expense for the fiscal year ended December 31,
2002, increased to $610,675, compared to $66,507, for the fiscal year ended
December 31, 2001, primarily due to a increase in short term borrowings.

<PAGE>

RESULTS OF OPERATIONS

     New Century generated revenues of $6,138,829 for fiscal year ended December
31, 2001, which was $935,318 decrease from $7,074,147 for the year ending
December 31, 2000. This decrease was primarily a result of the economic slow
down in 2001.

     Gross profit for the year ending December 31, 2001, was $1,004,241 or 16%
of revenues, compared to $357,875, or 5% in 2000, an increase of 180%, primarily
due to product development and research reflected in productivity improvement.

     Net operating loss increased to $478,666 for the year December 31, 2001
compared to $395,075 for year ended December 31, 2000 due to the non-recurring
corporate expenses related to the public company.

     Interest expense for the year ended December 31, 2001, decreased to
$66,507, compared to $67,839, year ended December 31, 2000, primarily due to a
decrease of the prime lending rate.

     Financial Condition, Liquidity, Capital Resources
     -------------------------------------------------

     Net cash used in the operations of New Century during fiscal year 2001 was
($483,855), which was a $1,044,154 decrease from fiscal year 2000. The decrease
is due to corporate expenses related to the public company. New century financed
its cash flow deficiency by securing financing through the placement of common
stock and Notes payable. Total cash provided by financing activities of $375,736
for the fiscal year 2001.

     The Registrant plans to continue to rely upon external financing sources to
meet the cash requirement of its ongoing operations. Management is currently

<PAGE>

seeking to raise additional funding on the form of equity or debt, or a
combination thereof. However, there is no guarantee that it will raise
sufficient capital to execute its business plan. To the extent that the
Registrant is unable to raise sufficient capital, the Registrant's business plan
will be required to be substantially modified and its operations curtailed.

     The company's auditors have issued their report which contains an
explanatory paragraph as to the company's ability to continue as a going
concern. The company is currently addressing its liquidity problem by the
following actions:
..   The company continues its aggressive program for selling inventory that has
    been produced or is currently in production.
..   The Company continues to implement plans to further reduce operating costs.
..   The Company is continually seeking investment capital through the public
    markets.
However, there is no guarantee that any of these strategies will enable the
company to meet its obligations for the foreseeable future.

     Inflation and Changing Prices
     -----------------------------

     The Registrant does not foresee any adverse effects on its earnings as a
result of inflation or changing prices.

     Critical Account Policies
     -------------------------

     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.

ITEM 7. Financial Statements.

     The Restated Financial Statements of the Company are set forth at the end
hereof.

                                    PART III

<PAGE>
                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Date:  April 28, 2003                   NEW CENTURY COMPANIES, INC.


                                        /s/  David Duquette
                                        ----------------------------------------
                                        Name:  David Duquette
                                        Title:  Chairman, President and Director

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and ill the capacities and on
the dates indicated.

Date: April 28, 2003                    /s/ David Duquette
                                        ----------------------------------------
                                        Name:  David Duquette
                                        Title:  Chairman, President and Director

Date:  April 28, 2003                   /s/ Josef Czikmantori
                                        ----------------------------------------
                                        Name:  Josef Czikmantori
                                        Title:  Secretary and Director

<PAGE>

                                  CERTIFICATION

         I, David Duquette, certify that:

         1.    I have reviewed this annual report on Form 10-KSB/A of New
Century Companies, Inc.;

         2.    Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

         3.    Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this annual report.

         4.    I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the Company and I have:

               a.    designed such disclosure controls and procedures to ensure
               that material information relating to the Company, including its
               consolidated subsidiaries, is made known to us by others within
               those entities, particularly during the period in which this
               annual report is being prepared;

               b.    evaluated the effectiveness of the Company's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

               c.    presented in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

         5.    I have disclosed, based on our most recent evaluation, to the
Company's auditors and the audit committee of Company's board of directors (or
persons performing the equivalent function):

               a.    all significant deficiencies in the design or operation of
               internal controls which could adversely affect the Company's
               ability to record, process, summarize and report financial data
               and have identified for the Company's auditors any material
               weaknesses in internal controls; and

               b.    any fraud, whether or not material, that involves
               management or other employees who have a significant role in the
               Company's internal controls; and

<PAGE>

         6.    I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

April 28, 2003                             /s/ David Duquette
                                           -------------------------------------
                                           Name:  David Duquette
                                           Title:  Chief Executive Officer and
                                                  Chief Financial Officer

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                                        CONTENTS
                                                               December 31, 2001

                                                                       Page

INDEPENDENT AUDITOR'S REPORT                                               1

FINANCIAL STATEMENTS

     Balance Sheet                                                     2 - 3

     Statements of Operations                                              4

     Statements of Shareholders' Deficit                                   5

     Statements of Cash Flows                                          6 - 7

     Notes to Financial Statements                                    8 - 25

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
New Century Companies, Inc.
Santa Fe Springs, California

We have audited the accompanying balance sheet of New Century Companies, Inc. as
of December 31, 2001, as restated (see Note 3), and the related statements of
operations, shareholders' deficit, and cash flows, as restated (see Note 3) for
each of the two years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the restated financial statements referred to above present
fairly, in all material respects, the financial position of New Century
Companies, Inc. as of December 31, 2001, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States
of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's current liabilities exceed its current
assets. This raises substantial doubt about the Company's ability to continue as
a going concern. Management's plan in regard to these matters is also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
April 1, 2002

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                                   BALANCE SHEET
                                                               December 31, 2001

                                     ASSETS
                                   (restated)

Current assets
   Cash                                                           $     43,764
   Contracts receivable                                                306,176
   Inventory                                                         1,193,204
   Costs and estimated earnings on contracts in
       progress in excess of billings                                  106,554
   Prepaid expenses and other current assets                            97,933
                                                                  ------------

         Total current assets                                        1,747,631

Property and equipment, net                                            700,865
Deposits                                                               474,177
                                                                  ------------

                Total assets                                      $  2,922,673
                                                                  ============

   The accompanying notes are an integral part of these financial statements.

                                       2

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                                   BALANCE SHEET
                                                               December 31, 2001

<TABLE>
<S>                                                                                                <C>
                      LIABILITIES AND SHAREHOLDERS' DEFICIT
                                   (restated)

Current liabilities
     Book overdraft                                                                                $         88,079
     Notes payable, net of discount of $106,000                                                             606,013
     Current portion of capital lease obligations                                                            44,537
     Accounts payable                                                                                     1,097,473
     Accrued expenses                                                                                       315,385
     Billings in excess of costs and estimated earnings on
         contracts in progress                                                                              921,584
                                                                                                   ----------------

              Total current liabilities                                                                   3,073,071

Capital lease obligations, net of current portion                                                            50,014
                                                                                                   ----------------

                  Total liabilities                                                                       3,123,085
                                                                                                   ----------------

Commitments and contingencies

Shareholders' deficit
     Cumulative, convertible, Series B preferred stock, $1 par value
         15,000,000 shares authorized
         no shares issued and outstanding                                                                         -
     Common stock issuable on conversion of Series B preferred stock
         95,023 shares                                                                                       56,900
     Common stock, $0.10 par value
         6,000,000 shares authorized
         4,940,527 shares issued and outstanding                                                            494,053
     Additional paid-in capital                                                                           1,410,927
     Treasury stock, at cost, 7,750 shares                                                                   (7,750)
     Subscription receivable                                                                             (1,087,500)
     Loans to shareholders                                                                                 (433,345)
     Deferred consulting fees                                                                              (155,031)
     Accumulated deficit                                                                                   (478,666)
                                                                                                   ----------------

              Total shareholders' deficit                                                                  (200,412)
                                                                                                   ----------------

                      Total liabilities and shareholders' deficit                                  $      2,922,673
                                                                                                   ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       3

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                        STATEMENTS OF OPERATIONS
                                                For the Years Ended December 31,

<TABLE>
<CAPTION>
                                                                    2001              2000
                                                              ---------------    --------------
                                                                 (restated)
<S>                                                           <C>                <C>
Net sales                                                     $     6,138,829    $    7,074,147

Cost of sales                                                       5,134,588         6,716,272
                                                              ---------------    --------------

Gross profit                                                        1,004,241           357,875

Operating expenses                                                  1,437,918           819,350
                                                              ---------------    --------------

Loss from operations                                                 (433,677)         (461,475)
                                                              ---------------    --------------

Other income (expense)
     Interest expense                                                 (66,507)          (67,839)
     Interest income                                                   17,916            11,621
     Other income                                                       4,402           123,418
                                                              ---------------    --------------

         Total other income (expense)                                 (44,189)           67,200
                                                              ---------------    --------------

Loss before provision for income taxes                               (477,866)         (394,275)

Provision for income taxes                                                800               800
                                                              ---------------    --------------

Net loss and net loss attributable to common
     shareholders                                             $      (478,666)   $     (395,075)
                                                              ===============    ==============

Basic and diluted loss per share                              $         (0.14)   $        (0.26)
                                                              ===============    ==============

Basic and diluted weighted-average shares outstanding               3,451,109         1,500,000
                                                              ===============    ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       4

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                             STATEMENTS OF SHAREHOLDERS' DEFICIT
                                                For the Years Ended December 31,

<TABLE>
<CAPTION>
                             Shares Issuable on
                               Conversion of                                  Additional
                         Series B Preferred Stock        Common Stock          Paid-in     Treasury    Subscription      Loans to
                        -------------------------  ------------------------
                          Shares         Amount       Shares       Amount      Capital      Stock       Receivable    Shareholders
                        ---------     -----------  -----------  -----------  -----------   --------    ------------   -------------
<S>                     <C>           <C>          <C>          <C>          <C>           <C>         <C>            <C>
Balance, December 31,
   1999                         -     $         -    1,500,000  $   150,000  $   (60,000)  $      -    $          -   $    (106,500)
Loan to shareholder                                                                                                        (251,824)
Net loss
                        ---------     -----------  -----------  -----------  -----------   --------    ------------   -------------
Balance, December 31,
   2000                         -               -    1,500,000      150,000      (60,000)         -               -        (358,324)
Merger with Internet-
   Mercado.com, Inc.      168,358         100,900    2,695,942      269,594     (275,244)    (7,750)        (87,500)
Reclassification of "S"
   corporation retained
   earnings on
   termination of "S"
   corporation status                                                            128,505
Issuance of common
   stock for
   subscription
   receivable                                          400,000       40,000      960,000                 (1,000,000)
Issuance of common
   stock for cash                                      200,000       20,000      230,000
Issuance of common
   stock for consulting
   services                                             71,250        7,125      285,000
Amortization of
   deferred
   consulting fees
Loan to shareholder                                                                                                         (75,021)
Discount on debt
   attributable to stock
   purchase warrants                                                             106,000
Issuance of committed
   common stock           (73,335)        (44,000)      73,335        7,334       36,666
Net loss
                        ---------     -----------  -----------  -----------  -----------   --------    ------------   -------------

Balance, December 31,
   2001 (restated)         95,023     $    56,900    4,940,527  $   494,053  $ 1,410,927   $ (7,750)   $ (1,087,500)  $    (433,345)
                        =========     ===========  ===========  ===========  ===========   ========    ============   =============

<CAPTION>
                                                       Retained
                                        Deferred       Earnings
                                       Consulting   (Accumulated

                                         Fees          Deficit)      Total
                                       ----------    -----------   ---------
<S>                                   <C>            <C>          <C>
Balance, December 31,
   1999                                $        -    $   523,580   $ 507,080
Loan to shareholder                                                 (251,824)
Net loss                                                (395,075)   (395,075)
                                       ----------    -----------   ---------
Balance, December 31,
   2000                                         -        128,505    (139,819)
Merger with Internet-
   Mercado.com, Inc.                                                       -
Reclassification of "S"
   corporation retained
   earnings on
   termination of "S"
   corporation status                                   (128,505)          -
Issuance of common
   stock for
   subscription
   receivable                                                              -
Issuance of common
   stock for cash                                                    250,000
Issuance of common
   stock for consulting
   services                              (292,125)                         -
Amortization of
   deferred
   consulting fees                        137,094                    137,094
Loan to shareholder                                                  (75,021)
Discount on debt
   attributable to stock
   purchase warrants                                                 106,000
Issuance of committed
   common stock                                                            -
Net loss                                                (478,666)   (478,666)
                                       ----------    -----------   ---------

Balance, December 31,
   2001 (restated)                     $ (155,031)   $  (478,666)  $(200,412)
                                       ==========    ===========   =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        5

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                        STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,

<TABLE>
<CAPTION>
                                                                             2001              2000
                                                                       ---------------    --------------
                                                                          (restated)
<S>                                                                    <C>                <C>
Cash flows from operating activities
   Net loss                                                            $      (478,666)   $     (395,075)
   Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities
       Depreciation and amortization of property and equipment                 216,490           129,500
       Amortization of consulting fees                                         137,094                 -
       Interest income                                                         (17,916)          (11,621)
       Inventory reserves for obsolescence                                           -           (50,000)
       (Increase) decrease in
         Contracts receivable                                                  (47,176)         (156,500)
         Inventory                                                            (503,365)          590,348
         Costs and estimated earnings on contracts in
              progress in excess of billings                                   (14,414)           43,806
         Prepaid expenses and other current assets                             (52,085)          (16,001)
         Deposits                                                             (250,000)                -
       Increase (decrease) in
         Accounts payable                                                      223,531          (182,482)
         Accrued expenses                                                      230,873           (68,224)
         Billings in excess of costs and estimated earnings on
              contracts in progress                                             71,779           676,548
                                                                       ---------------    --------------

Net cash provided by (used in) operating activities                           (483,855)          560,299
                                                                       ---------------    --------------

Cash flows from investing activities
   Purchase of property and equipment                                           (4,041)          (34,042)
   Loans to shareholders                                                       (75,021)         (251,824)
                                                                       ---------------    --------------

Net cash used in investing activities                                          (79,062)         (285,866)
                                                                       ---------------    --------------

Cash flows from financing activities
   Book overdraft                                                               88,079                 -
   Proceeds from notes payable                                                 250,000                 -
   Principal payments on notes payable                                        (176,834)         (116,208)
   Principal payments on capital lease obligations                             (35,509)          (26,358)
   Issuance of common stock                                                    250,000                 -
                                                                       ---------------    --------------

Net cash provided by (used in) financing activities                            375,736          (142,566)
                                                                       ---------------    --------------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       6

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                        STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,

<TABLE>
<CAPTION>
                                                                    2001               2000
                                                              ---------------    ----------------
                                                                (restated)
<S>                                                           <C>                <C>
Net increase (decrease) in cash                               $      (187,181)   $        131,867

Cash, beginning of year                                               230,945              99,078
                                                              ---------------    ----------------

Cash, end of year                                             $        43,764    $        230,945
                                                              ===============    ================


Supplemental disclosures of cash flow information

   Interest paid                                              $        66,507    $         67,839
                                                              ===============    ================

   Income taxes paid                                          $           800    $            800
                                                              ===============    ================
</TABLE>

Supplemental schedule of non-cash investing and financing activities
During the year ended December 31, 2001, the Company entered into the following
non-cash transactions:

..    issued 2,695,942 shares of common stock in connection with the merger of
     InternetMercado.com.

..    issued 400,000 shares of common stock in exchange for a $1,000,000
     subscription receivable.

..    issued 71,250 shares of common stock in exchange for $292,125 of consulting
     services.

..    converted 44,000 shares of preferred stock in exchange for 73,335 shares of
     common stock.

..    acquired $31,452 of property and equipment under capital lease obligations.

..    made a deposit on property in exchange for a $215,000 note payable.

During the year ended December 31, 2000, the Company entered into the following
non-cash transactions:

..    acquired $88,000 of property and equipment under capital lease obligations.

..    transferred $730,710 of inventory to property and equipment.

   The accompanying notes are an integral part of these financial statements.

                                       7

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 1 - BUSINESS AND ORGANIZATION

     General

     New Century Companies, Inc. (the "Company"), a California corporation, was
     incorporated March 1996 and is located in Southern California. The Company
     provides after-market services, including rebuilding, retrofitting, and
     remanufacturing of metal cutting machinery. Once completed, a
     remanufactured machine is "like new" with state-of-the-art computers, and
     the cost to the Company's customers is 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. The acquisition has been recorded
     at the value of the net assets of InternetMercado. The equity section has
     been restated to reflect the Company's current capital structure.
     Accordingly, the financial statements are the historical financial
     statements of New Century Companies, Inc. In addition, since the Company
     was an "S" Corporation prior to the merger, all retained earnings for the
     period prior to the merger have been reclassified to additional paid-in
     capital in accordance with rules promulgated by the Securities and Exchange
     Commission. Accumulated earnings between December 31, 2000 and May 25, 2001
     were not material.

                                       8

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 1 - BUSINESS AND ORGANIZATION (Continued)

     Name Change

     In June 2001, the Company's name was changed from InternetMercado.com, Inc.
     to New Century Companies, Inc.


NOTE 2 - GOING CONCERN AND RISKS AND UNCERTAINTIES

     Going Concern

     The Company's financial statements have been presented on the basis that it
     is a going concern, which contemplates the realization of assets and the
     satisfaction of liabilities in the normal course of business. As of
     December 31, 2001, the Company had high levels of inventory, its current
     liabilities exceeded its current assets, and it is not in compliance with
     loan terms, which caused the Company liquidity issues. These factors raise
     substantial doubt about the Company's ability to continue as a going
     concern.

     In response to these problems, management has taken the following actions:

     .   The Company continues its aggressive program for selling inventory.

     .   The Company continues to implement plans to further reduce operating
         costs.

     .   The Company merged with a public company in May 2001 (see Note 1) and
         is in the process of issuing a private placement.

     .   The Company is seeking investment capital through the public markets.

     .   The Company has secured approximately $1,815,500 worth of new orders
         from January 2002 through March 2002.

     The financial statements do not include any adjustments that might be
     necessary should the Company be unable to implement any or all of these
     plans.

     Listing and Maintenance Criteria for NASDAQ Securities

     The Company intends to apply for listing of its common stock on NASDAQ for
     the Small-Cap Market. The initial listing standards for the NASDAQ
     Small-Cap Market require that the Company have total assets of at least
     $4,000,000, total shareholders' equity of at least $2,000,000, a public
     float of at least 100,000 shares with a market value of at least
     $1,000,000, at least 300 shareholders, a minimum bid price for its common
     stock of $3 per share, and at least two market makers.

                                       9

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 2 - GOING CONCERN AND RISKS AND UNCERTAINTIES (Continued)

     Listing and Maintenance Criteria for NASDAQ Securities (Continued)

     To maintain its listing on the NASDAQ Small-Cap Market, the Company must
     continue to be registered under Section 12(g) of the Securities and
     Exchange Act of 1934 and have total assets of at least $2,000,000, total
     shareholders' equity of at least $1,000,000, a public float of at least
     100,000 shares with a market value of at least $200,000, at least 300
     shareholders, a minimum bid price for its common stock of $1 per share, and
     at least two market makers. There is not any assurance that the Company
     will be able to obtain or maintain the standards for NASDAQ Small-Cap
     Market listing.

     Concentrations of Risk

     Financial instruments which potentially subject the Company to
     concentrations of credit risk consist of cash and contracts receivable. The
     Company places its cash with high credit, quality financial institutions.
     At times, such cash may be in excess of the Federal Deposit Insurance
     Corporation insurance limit of $100,000. At December 31, 2001, the
     uninsured portions held at the financial institutions aggregated to
     $118,573. The Company has not experienced any losses in such accounts and
     believes it is not exposed to any significant credit risk on cash. With
     respect to contracts receivable, the Company routinely assesses the
     financial strength of its customers and, as a consequence, believes that
     the receivable credit risk exposure is limited.

     Major Customers

     During the year ended December 31, 2001, the Company conducted business
     with three customers whose sales comprised 28%, 22%, and 10% of net sales.
     As of December 31, 2001, three customers accounted for 44%, 36%, and 15% of
     total contracts receivable.

     Major Suppliers

     During the years ended December 31, 2001 and 2000, the Company conducted
     business with one supplier who accounted for 32% and 27% of total
     purchases, respectively. As of December 31, 2001, two suppliers accounted
     for 21% and 12% of total accounts payable.

NOTE 3 - RESTATEMENTS

     The Company previously recorded its convertible, Series B preferred stock
     as issued and outstanding. However, in accordance with the conversion terms
     of the preferred stock, the shares were to automatically convert into
     shares of common stock with the effectiveness of the registration
     statement, registering the underlying shares which registration statement
     on Form SB-2 File 333-89335 was declared effective in November 1999. As
     such, the Company has restated its December 31, 2001 financial statements
     to correctly reflect the Series B preferred stock as committed common
     shares.

                                       10

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 3 - RESTATEMENTS (Continued)

     The resulting impact of this restatement on net loss attributable to common
     shareholders is as follows:

<TABLE>
<CAPTION>
                                                                               Amount            Per Share
                                                                          ---------------    ----------------
            <S>                                                           <C>                <C>
            Net loss attributable to common shareholders, as
                previously reported                                       $      (549,791)   $          (0.16)
            Adjustment to correct dividends on preferred shares
                previously recorded                                                71,125                0.02
                                                                          ---------------    ----------------

                     Net loss attributable to common
                         shareholders, as restated                        $      (478,666)   $          (0.14)
                                                                          ===============    ================
</TABLE>

     On December 21, 2001, the Company signed a promissory note agreement for
     $215,000 for a deposit on the purchase of the building in which it operates
     (see Note 8). This note payable was incorrectly excluded from its
     previously filed financial statements. This transaction did not have any
     impact on the Company's reported net loss for the year ended December 31,
     2001.

     The effect on the Company's total assets and liabilities as of December 31,
     2001 is as follows:

<TABLE>
<CAPTION>
                                                           As Reported Amount      As Restated
                                                          -----------------------  ------------
            <S>                                           <C>          <C>         <C>
            Total assets                                  $ 2,707,673  $  215,000  $  2,922,673
            Total liabilities                             $ 2,908,085  $  215,000  $  3,123,085
</TABLE>

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Revenue Recognition

     Service Revenue

     Service revenues are billed and recognized in the period the services are
     rendered and earned and the collection of the related receivable is
     reasonably assured. Service revenues for the years ended December 31, 2001
     and 2000 were not material.

     Method of Accounting for Long-Term Contracts

     In accordance with the American Institute of Certified Public Accountant's
     Statement of Position 81-1, "Accounting for Performance of Certain
     Construction-Type and Certain Product Type Contracts," the Company records
     its revenue on long-term, fixed priced contracts on the basis of the
     percentage-of-completion method applied to individual contracts, commencing
     when progress reaches a point where experience is sufficient to estimate
     final results with reasonable accuracy.

                                       11

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Revenue Recognition (Continued)

     Method of Accounting for Long-Term Contracts (Continued)
     That portion of the total contract price is accrued which is allocable, on
     the basis of the Company's estimates of the percentage of completion, to
     contract expenditures and work performed. Operating expenses, including
     indirect costs and administrative expenses, are charged to income as
     incurred and are not allocated to contract costs.

     As these long-term contracts extend over one or more years, revisions in
     cost and profit estimates during the course of the work are recognized in
     the accounting period in which the facts which require the revision become
     known.

     At the time a loss on a contract becomes known, the entire amount of the
     estimated ultimate loss on both short- and long-term contracts is accrued.

     Substantially all of the Company's revenues were derived from long-term
     contracts for the years ended December 31, 2001 and 2000.

     Comprehensive Income

     The Company utilizes Statement of Financial Accounting Standards ("SFAS")
     No. 130, "Reporting Comprehensive Income." This statement establishes
     standards for reporting comprehensive income and its components in a
     financial statement. Comprehensive income as defined includes all changes
     in equity (net assets) during a period from non-owner sources. Examples of
     items to be included in comprehensive income, which are excluded from net
     income, include foreign currency translation adjustments and unrealized
     gains and losses on available-for-sale securities. Comprehensive income is
     not presented in the Company's financial statements since the Company did
     not have any of the items of comprehensive income in any period presented.

     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.

     Property and Equipment

     Property and equipment are stated at cost. The Company provides for
     depreciation and amortization using the straight-line method over the
     estimated useful lives of the various classes of property and equipment as
     follows:

              Machinery and equipment                           5 years
              Computer equipment                                5 years
              Capital lease equipment                           5 years
              Leasehold improvements                            5 years

                                       12

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Property and Equipment (Continued)

     Maintenance and repair costs are expensed as they are incurred while
     renewals and improvements of a significant nature are capitalized. At the
     time of retirement or disposal of property and equipment, the cost and
     related accumulated depreciation or amortization are removed from the
     accounts, and any resulting gain or loss is reflected in the results of
     operations.

     Fair Value of Financial Instruments

     For the Company's financial instruments, including cash, contracts
     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.

     Warranty Policy

     The Company's warranty policy provides for varying years of coverage for
     its machines and labor. The Company's policy is to accrue the estimated
     cost of warranty coverage and returns as part of the production costs on
     fixed-priced contracts and at the time the product is shipped for any other
     product sales.

     Stock-Based Compensation

     SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
     encourages the use of the fair value based method of accounting for
     stock-based compensation arrangements under which compensation cost is
     determined using the fair value of stock-based compensation determined as
     of the date of grant and is recognized over the periods in which the
     related services are rendered. The statement also permits companies to
     elect to continue using the current intrinsic value accounting method
     specified in Accounting Principles Board ("APB") Opinion No. 25,
     "Accounting for Stock Issued to Employees," to account for stock-based
     compensation issued to employees.

     The Company has elected to use the intrinsic value based method and has
     disclosed the pro forma effect of using the fair value based method to
     account for its stock-based compensation. For stock-based compensation
     issued to non-employees, the Company uses the fair value method of
     accounting under the provisions of SFAS No. 123.

     Advertising

     Advertising expenses are charged to expense as incurred. For the years
     ended December 31, 2001 and 2000, total advertising expense was $83,812 and
     $204,832, respectively.

                                       13

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Income Taxes

     The Company provides for income taxes in accordance with 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.

     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 December 31, 2001 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 years ended December 31, 2001 and 2000 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. For the
     years ended December 31, 2001 and 2000, because the Company incurred net
     losses, basic and diluted loss per share are the same. In addition, the
     Company had certain convertible preferred stock and common stock, including
     options and warrants, which were not included in diluted loss per share as
     their effects would have been anti-dilutive.

     Reclassifications

     Certain amounts included in the prior year financial statements have been
     reclassified to conform with the current year presentation. Such
     reclassification did not have any effect on reported net loss.

                                       14

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 4 - 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.

     Recently Issued Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board ("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. The Company does not expect adoption of SFAS No. 143 to have a
     material impact, if any, on its financial position or results of
     operations.

     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 Company does
     not expect adoption of SFAS No. 144 to have a material impact, if any, on
     its financial position or results of operations.

NOTE 5 - CONTRACTS IN PROGRESS

         Contracts in progress as of December 31, 2001 were as follows:

               Cumulative costs to date                            $  1,023,205
               Cumulative gross profit to date                          481,684
                                                                   ------------

               Cumulative revenue earned                              1,504,889
               Less progress billings to date                         2,319,919
                                                                   ------------

                   Net overbillings                                $   (815,030)
                                                                   ============



                                       15

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 5 - CONTRACTS IN PROGRESS (Continued)

     The following is included in the accompanying balance sheet under these
     captions as of December 31, 2001:

<TABLE>
            <S>                                                           <C>
            Costs and estimated earnings on contracts in
                progress in excess of billings                            $     106,554
            Billings in excess of costs and estimated earnings
                on contracts in progress                                        921,584
                                                                          -------------

                     Net overbillings                                     $    (815,030)
                                                                          =============
</TABLE>

NOTE 6 - PROPERTY AND EQUIPMENT

     Property and equipment at December 31, 2001 consisted of the following:

<TABLE>
            <S>                                                           <C>
            Machinery and equipment                                       $     876,781
            Computer equipment                                                   26,506
            Capital lease equipment                                             159,652
            Leasehold improvements                                              106,107
                                                                          -------------

                                                                              1,169,046

            Less accumulated depreciation and amortization                      468,181
                                                                          -------------

                Total                                                     $     700,865
                                                                          =============
</TABLE>

     For the years ended December 31, 2001 and 2000, depreciation and
     amortization expense amounted to $216,490 and $129,500, respectively.
     Included in accumulated depreciation is $31,930 for capital lease equipment
     at December 31, 2001.

NOTE 7 - LOANS TO SHAREHOLDERS

     As of December 31, 2001, 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 years
     ended December 31, 2001 and 2000, total interest income from loans to
     shareholders was $17,916 and $11,621, respectively.

                                       16

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 8 - NOTES PAYABLE

     Notes payable at December 31, 2001 consisted of the following:

<TABLE>
            <S>                                                                 <C>
            Notepayable - converted from line of credit, secured by all
                of the Company's assets and personal guarantees of the
                shareholders. Payable monthly at $8,500, plus interest at
                the Citibank, N.A.'s base rate (4.75% at December 31,
                2001), plus 1%. Debt matured in February 2001, but was
                subsequently extended to June 2002.                             $        170,624

            Notepayable - secured by all of the Company's assets and
                personal guarantees of the shareholders. Payable monthly
                at $6,944, plus interest at the Citibank, N.A.'s base rate
                (4.75% at December 31, 2001), plus 1.25%. Debt matures in
                December 2002. The Company must maintain certain financial
                covenants of which the Company was not in compliance at
                December 31, 2001.                                                        76,389

            Notepayable - original principal of $250,000, unsecured,
                including warrants to purchase the Company's common stock
                at an exercise price of $0.20 per share. The note payable
                is personally guaranteed by a shareholder of the Company.
                Payable on or before June 21, 2002, accruing interest at
                18% per annum. This amount is net of a discount applicable
                to detachable warrants of $106,000.                                      144,000

            Notepayable - promissory note dated December 21, 2001,
                original principal balance of $215,000 due in 90 days. The
                note bears interest, in default, at the greater of 15% per
                annum or the highest allowable rate under California state
                law, subject to certain limitations. The note is jointly
                executed by the Company's President and another shareholder.             215,000
                                                                                ----------------

                                                                                         606,013
            Less current portion                                                         606,013
                                                                                ----------------

                     Long-term portion                                          $              -
                                                                                ================
</TABLE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES

     Leases

     The Company leases equipment under an operating lease requiring minimum
     monthly payments of $273 per month through August 2005. For the year ended
     December 31, 2001 and 2000, total equipment rent expense was $3,277 and
     $3,277, respectively.

                                       17

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)

     Leases (Continued)

     The Company leases a truck under an operating lease requiring minimum
     monthly payments of $538 per month through July 2005. For the years ended
     December 31, 2001 and 2000, truck lease expense was $6,460 and $2,690,
     respectively.

     The Company leases office and factory space under an operating lease
     requiring minimum monthly payments of $6,800 through August 2003. The
     agreement calls for annual increases. For the years ended December 31, 2001
     and 2000, rent expense was $83,150 and $79,200, respectively.

     On November 30, 2001, the Company entered into an agreement with a real
     estate company to lease its office and warehouse facility, commencing
     December 31, 2001. The lease requires initial monthly payments of $28,515
     and includes annual increases of 3% through December 2006. The lease is
     personally guaranteed by one of the shareholders. The agreement includes an
     option to purchase the land and building for $3,550,000. As of December 31,
     2001, the Company had placed $250,000 in escrow to be used toward such
     purchase, which is included in deposits in the accompanying balance sheet.
     These monies are non-refundable, except for reasons specified in the
     agreement. In addition, on December 21, 2001, the Company executed a
     promissory note in the amount of $215,000 (see Note 8) toward the purchase
     of the property.

     The Company also leases equipment under capital lease obligations that
     expire through December 2005. Monthly payments of $5,201 are due, including
     interest at rates ranging from 16% to 31%.

     Future minimum lease payments under operating and capital lease agreements
     at December 31, 2001 were as follows:

<TABLE>
<CAPTION>
          Year Ending                                          Operating            Capital
         December 31,                                            Leases             Leases
         ------------                                        --------------     -------------
         <S>                                                 <C>                <C>
             2002                                            $      435,911     $      62,405
             2003                                                   418,176            34,805
             2004                                                   372,750            14,155
             2005                                                   378,499            10,033
             2006                                                   385,120                 -
                                                             --------------     -------------

                                                             $    1,990,456           121,398
                                                             ==============
         Less amount representing interest                                             26,847
                                                                                -------------

                                                                                       94,551
         Less current portion                                                          44,537
                                                                                -------------

             Long-term portion                                                  $      50,014
                                                                                =============
</TABLE>

                                       18

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)

     Leases (Continued)

     Interest expense related to capital lease obligations for the years ended
     December 31, 2001 and 2000 was $26,896 and $19,062, respectively.

     Service Agreements

     Periodically, the Company enters into various agreements for services
     including, but not limited to, public relations, financial consulting, and
     manufacturing consulting. Generally, the agreements are ongoing until such
     time they are terminated, as defined. Compensation for services is paid
     either at a fixed monthly rate or based on a percentage, as specified, and
     may be payable in shares of the Company's common stock. As of December 31,
     2001, the Company was a party to two such agreements. During the years
     ended December 31, 2001 and 2000, the Company incurred $137,094 and $0,
     respectively, in connection with such arrangements. Such expense is
     included in operating expenses in the accompanying statements of
     operations. The Company's policy is that expenses related to these types of
     agreements are valued at the fair market value of the services or the
     shares granted, whichever is more realistically determinable. Such expenses
     are amortized over the period of the service (see Note 11).

NOTE 10 - SERIES B PREFERRED STOCK

     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 December 31, 2001, no shares were issued and
     outstanding. As of December 31, 2001, in accordance with the conversion
     terms of the convertible Series B preferred stock, 95,023 shares of common
     stock remained unissued and committed. During the year ended December 31,
     2001, 73,335 shares of common stock were issued in relation to these
     committed shares.

NOTE 11 - COMMON STOCK

     Common Stock Issued for Subscription Receivable

     The Company received an $87,500 subscription receivable from a member of
     the Board of Directors in exchange for shares of the Company's common
     stock. The receivable bears interest at an annual rate of 6%. Principal and
     any unpaid interest is due on October 6, 2001. As of December 31, 2001, the
     receivable remained unpaid, and management expects full collection.

                                       19

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 11 - COMMON STOCK (Continued)

     Common Stock Issued for Subscription Receivable (Continued)

     On May 25, 2001, the Company received a $1,000,000 subscription receivable
     from five employees in exchange for 400,000 shares of the Company's common
     stock. The receivable bears 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.

     Common Stock Issued for Cash

     During the year ended December 31, 2001, the Company issued 200,000 shares
     of common stock to a shareholder, valued at $1.25 per share, for $250,000
     in cash.

     Common Stock Issued for Services

     On November 15, 2001, the Company issued 31,250 restricted shares of common
     stock to a consultant for services in connection with a private placement.
     The shares were valued at the fair market value as of November 15, 2001, or
     $4.10 per share, totaling $128,125. The term of the agreement was two
     months, and the related expense is being amortized accordingly.

     On November 15, 2001, the Company entered into a second agreement with a
     consulting firm. The agreement had a term of 18 months from the effective
     date and called for the issuance of 40,000 shares of common stock. The
     stock was valued at $4.10 per share, which was the trading value of the
     Company's common stock, or $164,000. This amount is being amortized over
     the term of the agreement.

     Total amounts recognized and deferred in connection with these agreements
     are as follows:

<TABLE>
<CAPTION>
                                                                     Total            Amount            Amount
                                                   Shares            Amount         Recognized         Deferred
                                               ---------------  ----------------  ---------------  ----------------
                  <S>                          <C>              <C>               <C>              <C>
                  First agreement                       31,250  $        128,125  $        96,094  $         32,031
                  Second agreement                      40,000           164,000           41,000           123,000
                                               ---------------  ----------------  ---------------  ----------------

                    Total                               71,250  $        292,125  $       137,094  $        155,031
                                               ===============  ================  ===============  ================
</TABLE>

     New Issuances of Common Stock

     Generally, all new issuances of common stock made by the Company carry
     registration rights.

                                       20

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 12 - WARRANTS AND STOCK OPTIONS

     Warrants

     On December 21, 2001, the Company issued warrants to purchase 100,000
     shares of common stock for $2 per share, which is exercisable for two years
     from the date of issuance. The warrants were issued in connection with a
     six-month, short-term note payable. In accordance with accounting
     principles generally accepted in the United States of America, the proceeds
     of the financing have been allocated to the debt and the warrants, based on
     their relative fair values. Accordingly, a discount of $106,000 has been
     recorded as a reduction in the debt balance, and the off-setting credit has
     been recorded as additional paid-in capital. The discount is being
     amortized and charged to expense over the life of the debt. During the year
     ended December 31, 2001, amortization of the discount was not material.

     Employee Stock Options

     In connection with the merger agreement with InternetMercado, the Company
     assumed the Incentive Stock Option Plan ("ISOP") granted by InternetMercado
     to its employees.

     Under the terms of the Company's ISOP, options to purchase 1,000,000 shares
     of common stock may be issued to all key employees who are eligible to
     receive non-assignable and non-transferable options to purchase shares. The
     exercise price of any option may not be less than the fair market value of
     the shares on the date of grant. No options granted may be exercisable more
     than 10 years after the date of grant. The options granted generally vest
     evenly over a one-year period, beginning from the date of grant. During the
     year ended December 31, 2000, the Company assumed 233,250 stock options in
     connection with the merger agreement under the Company's ISOP.

     Non-Employee Stock Options

     The Company has also assumed a non-statutory stock option plan ("NSSO") to
     purchase an aggregate of 1,350,000 shares of common stock granted to three
     non-employees for services rendered. These options are non-assignable and
     non-transferable, are exercisable over a five-year period from the date of
     grant, and vested on the date of grant. During the year ended December 31,
     2000, the Company assumed 308,333 stock options in connection with the
     merger agreement under the Company's NSSO plan.

                                       21

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 12 - WARRANTS AND STOCK OPTIONS (Continued)

     Warrant and Stock Option Transactions

     The following table summarizes all of the Company's warrant and stock
     option transactions:

<TABLE>
<CAPTION>
                                                                                        Weighted-
                                              Number of Shares                           Average
                                        ------------------------------
                                                             Non-                        Exercise
                                           Employee        Employee         Total          Price
                                        --------------  --------------  -------------  -------------
           <S>                          <C>             <C>             <C>            <C>
           Assumed in connection
             with merger agreement             233,250         308,333        541,583  $       10.48
               Granted                               -         100,000        100,000  $        2.00
                                        --------------  --------------  -------------

           Outstanding and
             exercisable,
             December 31, 2001                 233,250         408,333        641,583  $        9.15
                                        ==============  ==============  =============
</TABLE>

     The weighted-average remaining contractual life of the warrants and options
     outstanding at December 31, 2001 was 3.37 years. The exercise prices of the
     warrants and options outstanding at December 31, 2001 ranged from $2 to
     $12.50, and information relating to these options is as follows:

<TABLE>
<CAPTION>
                                                                                 Weighted-
                                                                                  Average
                                                           Weighted-         Exercise Price of
                                    Stock Options           Average            Stock Options
                  Range of          and Warrants           Remaining           and Warrants
                  Exercise         Outstanding and        Contractual         Outstanding and
                   Prices            Exercisable              Life              Exercisable
               --------------     ----------------     -----------------     -----------------
               <S>                <C>                  <C>                   <C>
               $  2.00 - 7.50              135,000            3.59 years     $            3.30
               $         9.80               64,750            3.36 years     $            9.80
               $        10.00              291,833            3.28 years     $           10.00
               $        12.50              150,000            3.36 years     $           12.50
                                  ----------------

                                           641,583
                                  ================
</TABLE>

     All stock options issued to employees have an exercise price not less than
     the fair market value of the Company's common stock on the date of the
     grant. In accordance with accounting for such options utilizing the
     intrinsic value method, there is not any related compensation expense
     recorded in the Company's financial statements. Had compensation cost for
     stock-based compensation been determined based on the fair value of the
     grant dates consistent with the methods of SFAS No. 123, the Company's net
     loss and loss per share for the years ended December 31, 2001 and 2000
     would be the same since employee options were not issued during those
     years. As such, no pro forma disclosure has been made.

                                       22

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 12 - WARRANTS AND STOCK OPTIONS (Continued)

     Warrant and Stock Option Transactions (Continued)

     The fair value of the warrants granted during the year ended December 31,
     2001 for purposes of determining the discount to be applied to the note
     payable issued with detachable warrants is estimated on the date of grant
     utilizing the Black-Scholes option-pricing model with the following
     weighted-average assumptions for the year ended December 31, 2001: dividend
     yield of 0%, expected volatility of 175%, risk-free interest rate of 3.17%,
     and expected life of two years.

NOTE 13 - BACKLOG

     The following schedule summarizes changes in backlog on contracts during
     the year ended December 31, 2001. Backlog represents the amount of revenue
     the Company expects to realize from work to be performed on uncompleted
     contracts in progress at December 31, 2001 and from contractual agreements
     on which work has not yet begun:

<TABLE>
            <S>                                                                 <C>
            Backlog balance at December 31, 2000                                $   2,438,165
            New contracts and contract adjustments during the year                  6,466,628
                                                                                -------------

            Sub-total                                                               8,904,793
            Less contract revenue earned during the year                            6,138,829
                                                                                -------------

                Backlog balance at December 31, 2001                            $   2,765,964
                                                                                =============
</TABLE>

NOTE 14 - INCOME TAXES

     Significant components of the Company's deferred tax assets at December 31,
     2001 were as follows:

<TABLE>
            <S>                                                                 <C>
            Net operating loss carryforward                                     $     133,000
            Reserve for warranty                                                       12,900
            Accrued compensated absences                                               12,000
                                                                                -------------

                                                                                      157,900
            Less valuation allowance                                                  157,900
                                                                                -------------

                Total                                                           $           -
                                                                                =============
</TABLE>

                                       23

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 14 - INCOME TAXES (Continued)

     A reconciliation of the expected income tax computed using the federal
     statutory income rate to the Company's effective rate for the year ended
     December 31, 2001 is as follows:

<TABLE>
             <S>                                                                <C>
             Income tax computed at federal statutory tax rate                           34.0%
             State taxes, net of federal benefit                                          5.8
             Benefit from termination of "S" corporation status                          (6.0)
             Change in valuation allowance                                              (33.8)
                                                                                -------------

                 Total                                                                      -%
                                                                                =============
</TABLE>

     A reconciliation of the expected income tax has not been provided for the
     year ended December 31, 2000 as the Company operated as an "S" corporation
     during that period.

     Realization of the future tax benefits related to the deferred assets is
     dependent on many factors, including the Company's ability to generate
     taxable income within the net operating loss carryforward period.
     Management has considered these factors in reaching its conclusion as to
     the valuation allowance for financial reporting purposes.

     As of December 31, 2001, the valuation allowance for deferred tax assets
     totaled $157,900. For the years ended December 31, 2001 and 2000, the net
     change in the valuation allowance was an increase of $157,900 and a change
     of $0, respectively.

     As of December 31, 2001, the Company had net operating loss carryforwards
     for federal and state income tax purposes of approximately $426,900 and
     $212,900, respectively. The net operating loss carryforwards begin expiring
     in 2021 and 2011, respectively. The utilization of net operating loss
     carryforwards may be limited due to the ownership change under the
     provisions of Internal Revenue Code Section 382 and similar state
     provisions.

NOTE 15 - SUBSEQUENT EVENTS

     Private Placement Memorandum

     Subsequent to December 31, 2001, the Company authorized 60,000 shares of
     Series C 5% convertible preferred stock (the "Series C"). Effective March
     20, 2002, the Company began the process of preparing for the public
     offering of the Series C at a price of $25 a share, with a minimum offering
     of 30,000 shares and a maximum of 60,000 shares. The Series C has a par
     value of $1 per share and is convertible into 16.667 shares of the
     Company's common stock with a par value of $0.10 per share, representing a
     purchase price of $1.50 per share.

                                       24

<PAGE>

                                                     NEW CENTURY COMPANIES, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 2001

NOTE 15 - SUBSEQUENT EVENTS (Continued)

     Sublease Agreement

     In January 2002, the Company entered into an agreement with an unrelated
     party to sublease its office and factory space, expiring in August 2003.
     The sublease agreement requires monthly rent of $8,200 and a security
     deposit equal to the monthly rent.

                                       25