**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON
      DC 20549





**FORM
      10-KSB**





(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, 2006**





OR





**o
      TRANSITION REPORT UNDER
      SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE**


**ACT
      OF 1934.**





**FOR
      THE TRANSITION PERIOD FROM __________ TO____________**





*COMMISSION
      FILE NUMBER 000-09459*





**NEW
      CENTURY COMPANIES, INC.**




(NAME
      OF
      SMALL BUSINESS ISSUER IN ITS CHARTER)


DELAWARE
            0610345787(STATE
                OR OTHER JURISDICTION OF INCORPORATION)
            (I.R.S.
                EMPLOYER
              IDENTIFICATION
                NO.)9835
                SANTA FE SPRINGS RD.SANTA
                FE SPRINGS, CA
            90670(ADDRESS
                OF PRINCIPAL EXECUTIVE OFFICES)
            (ZIP
                CODE)




(562)
      906-8455


(ISSUER'S
      TELEPHONE NUMBER, INCLUDING AREA CODE)





**SECURITIES
      REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:**





NAME
                OF EACH EXCHANGETITLE
                OF EACH CLASS
            
            ON
                WHICH REGISTERED




**SECURITIES
      REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:**





**COMMON
      STOCK, PAR VALUE $0.10**


(TITLE
      OF
      CLASS)


1


Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Securities Exchange Act.




Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the Company was required to file such reports), and (2)
      has
      been subject to such filing requirements for the past 90 days. Yes x No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained
      to
      the best of Company's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-SKB or any amendment
      to
      this Form 10-KSB. x





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Securities Exchange Act). Yes o No x





The
      issuer's revenues for its most recent fiscal year was $8,318,957.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, on the average bid and ask price of such common equity on March 29, 2007
      was $3,054,397.




As
      of
      March 29, 2007, there were 12,264,656 shares of common stock issued and
      outstanding.


2





NEW
      CENTURY COMPANIES, INC.


FORM
      10-KSB


INDEX


PAGEPART
                  IItem
                  1
              Description
                  of Business
              4Item
                  2
              Description
                  of Property
              8Item
                  3
              Legal
                  Proceedings
              9Item
                  4
              Submission
                  of Matters To a Vote of Security Holders
              9PART
                  IIItem
                  5
              Market
                  for Company's Common Equity, Related Stockholder Matters, and Small
                  Business Issuer processes of Equity Securities
              9Item
                  6
              Management's
                  Discussion and Analysis or Plan of Operation
              14Item
                  7
              Financial
                  Statements
              18Item
                  8
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              18Item
                  8A
              Disclosure
                  Controls and Procedures
              18PART
                  IIIItem
                  9
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
                  Section
                  16(a) of The Exchange Act
              19Item
                  10
              Executive
                  Compensation
              20Item
                  11
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              22Item
                  12
              Certain
                  Relationships and Related Transactions
              23Item
                  13
              Exhibits
              23Item
                  14
              Principal
                  Accountant Fees and Services
              25Signatures
              26


3






**PART
        I**


Forward Looking Statements




This
      Annual Report on Form 10-KSB contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
      Securities Exchange Act of 1934. These statements relate to future events or
      the
      Company's future financial performance. The Company has attempted to identify
      forward-looking statements by terminology including "anticipates," "believes,"
      "expects," "can," "continue," "could," "estimates," "expects," "intends," "may,"
      "plans," "potential," "predict," "should" or "will" or the negative of these
      terms or other comparable terminology.





Although
      the Company believes that the expectations reflected in the forward-looking
      statements are reasonable, the Company cannot guarantee future results, levels
      of activity, performance or achievements. The Company expectations are as of
      the
      date this Form 10-KSB is filed, and the Company does not intend to update any
      of
      the forward-looking statements after the date this Annual Report on Form 10-KSB
      is filed to confirm these statements to actual results, unless required by
      law.




**ITEM
        1. DESCRIPTION OF BUSINESS.**




**OVERVIEW**





**Corporate
      History and Operations**





The
      common stock of New Century Companies, Inc. ("New Century" or the "Company")
      is
      quoted on the OTC Bulletin Board under the symbol "NCNC.OB". Prior to May 25,
      2001, the Company was engaged in the business of marketing services to other
      companies wanting to reach the Hispanic market. However, due to difficulty
      in
      raising additional working capital to execute the business plan, the Company
      ceased its operations and completed a reverse merger.





On
      May
      25, 2001, the Company entered into a plan of Reorganization and Merger with
      New
      Century Remanufacturing, Inc., (“NCR”). Pursuant to the merger, all of the
      outstanding shares of NCR were exchanged for shares of the Company on a 1 to
      833.33 basis. The Company issued a total of 4,195,942 shares of common stock.
      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 operations and the related financial statements
      are the results of operations for NCR.





Since
      the
      merger, the Company has been engaged in acquiring, re-manufacturing and selling
      pre-owned Computer Numerically Controlled ("CNC") machine tools to manufacturing
      customers. The Company provides rebuilt, retrofit and remanufacturing services
      for numerous brands of machine tools. The remanufacturing of a machine tool,
      typically consisting of replacing all components, realigning the machine, adding
      updated CNC capability and electrical and mechanical enhancements, generally
      takes two to four months to complete. Once completed, a remanufactured machine
      is a "like new," state-of-the-art machine with a price ranging from $275,000
      to
      $1,000,000, which is approximately 40%-50% of the price of a new machine. The
      Company also manufactures original equipment CNC large turning lathes and
      attachments under the trade name Century Turn.





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


4


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





The
      primary industry segments in which NCR machines are utilized to make component
      parts are in aerospace, power generation turbines, military, component parts
      for
      the energy sector for natural gas and oil exploration and medical fields. The
      Company sells its products to customers in the United States, Canada and Mexico.





Over
      the
      last four years, the Company has designed and developed a large horizontal
      CNC
      turning lathe with productivity features new to the metalworking industry.
      The
      Company has applied for a patent for the Century Turn Lathe. The Company
      believes that a potential market for the Century Turn Lathe, in addition to
      the
      markets mentioned above, is aircraft landing gear.





**INDUSTRY
      OVERVIEW**





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





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





**CUSTOMERS**





Each
      year
      we have approximately 50% new customers and 50% repeat customers.




**SUPPLIERS**





Our
      three
      largest suppliers are GE Fanuc Automation, Bearings and Drives and Sandvik
      Coromant.





**MARKETING**





We
      market
      our CNC turning lathes primarily through direct sales and independent
      representatives throughout the United States. We also market our lathes through
      advertising in industrial trade publications. We have recently engaged the
      services of three independent sales representatives who have had a key impact
      on
      the amount of direct sales.





We
      market
      our CNC vertical boring mills by advertising in regional and national trade
      publications and distribute product literature explaining the differences
      between used and remanufactured machinery.





**BUSINESS
      STRATEGY AND MARKET DEVELOPMENT**





Our
      business strategy is to capitalize on the opportunities for growth in our core
      businesses by increasing our penetration of existing markets and expanding
      into
      new markets by introducing new products and services.




**SEASONALITY**





Our
      business is subject to certain seasonal fluctuations in sales, with a pattern
      of
      net sales being lower in the second fiscal quarter, due to plant closings in
      the
      summer months and vacations. The market for machine tools is also sensitive
      to
      economic conditions, production capacity utilization and the general level
      of
      business confidence.


5


**COMPETITION**





The
      market for remanufacturing services for the machine tools is competitive; with
      competition from numerous independent rebuild suppliers with various sales
      and
      resource levels. We believe that we have a competitive advantage because we
      employ skilled personnel who have been trained for and have experience with
      these products. Principal competitive factors for our products and services
      are
      proprietary technology, customer service, technical support, delivery and price.





**SOURCES
      AND AVAILABILITY OF RAW MATERIALS**





Our
      products are manufactured from various raw materials, including cast iron,
      sheet
      metal, bar steel and bearings. Although our operations are highly integrated,
      we
      purchase a number of components from outside suppliers, including the computer
      and electronic components for our CNC turning lathes. There are multiple
      suppliers for virtually all of our raw material and components and we have
      not
      experienced a supply interruption.





**RESEARCH
      AND DEVELOPMENT**





Our
      ongoing research and development program involves creating new products and
      modifying existing products to meet market demands and redesigning existing
      products to reduce the cost of manufacturing. The research and development
      department is staffed with experienced design engineers. In the last year we
      did
      not incur any cost of research and development.





**PATENTS
      AND TRADEMARKS**





The
      Company has applied for patents and trademarks relating to its manufactured
      products. However, the Company's business generally is not dependent upon the
      protection of any patent, patent application or patent license agreement, or
      group thereof, and would not be materially affected by the expiration thereof.





**EMPLOYEES**





At
      December 31, 2006, we had 42 full-time employees. The Company believes its
      relationships with its employees are good. The Company's employees are not
      represented by a collective bargaining organization and the Company has not
      experienced a work stoppage.





**ENVIRONMENTAL
      MATTERS**





The
      industry in which we compete is subject to environmental laws and regulations
      concerning emissions to the air, discharges to waterways, and the generation,
      handling, storage, transportation, treatment and disposal of waste materials.
      These laws and regulations are constantly evolving and we cannot predict
      accurately the effect they will have on our business in the future. It is our
      policy to comply with all applicable environmental, health and safety laws
      and
      regulations. In many instances, the regulations have not been finalized. Even
      where regulations have been adopted, they are subject to varying and conflicting
      interpretations and implementation. In some cases, compliance can only be
      achieved by capital expenditures. We cannot accurately predict what capital
      expenditures, if any, may be required. We believe that our operations are in
      compliance with all applicable laws and regulations relating to environmental
      matters.





**AVAILABLE
      INFORMATION**





The
      Company files annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
      current reports on Form 8-K and proxy and information statements and amendments
      to reports files or furnished pursuant to Sections 13(a) and 15(d) of the
      Security Exchange Act of 1934, as amended. The public may read and copy this
      materials at the SEC`s Public Reference Room at 450 Fifth St. NW, Washington,
      DC
      20549. The public may obtain information on the operation of the Public
      Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
      a
      website (HTTP://WWW.SEC.GOV) that contains reports, proxy and information
      statements and other information regarding the Company and other companies
      that
      file materials with the SEC electronically.


6




RISK FACTORS




**Operating
      Results Fluctuate**





The
      Company’s results of operations for any quarter or year are not necessarily
      indicative of results to be expected in future periods. New Century’s future
      operating results may be affected by various trends and factors that must be
      managed in order to achieve favorable operating results. The inability to
      forecast these trends and factors could have a material adverse effect on its
      business, results of operations, and financial condition. The Company’s
      operating results have historically been and are expected to continue to be
      subject to quarterly and yearly fluctuations as a result of a number of factors.
      These factors include:


n
              adverse
                  changes in the conditions in the specific markets for its products;
 
 n
              visibility
                  to, and the actual size and timing of, capital expenditures by
                  its
                  customers;
 
 n
              inventory
                  practices, including the timing of deployment, of its
                  customers;
 
 n
              adverse
                  changes in the public and private equity and debt markets and the
                  ability
                  of its customers and suppliers to obtain financing or to fund capital
                  expenditures;
 
 n
              adverse
                  changes in the credit ratings of its customers and
                  suppliers;
 
 n
              a
                  general downturn in the overall
                  economy;
 
 n
              a
                  decline in government defense funding that lowers the demand for
                  defense
                  equipment and retrofitting;
 
 n
              competitive
                  pricing and availability of competitive products;
                  and
 
 n
              adverse
                  changes in the ability of the company to obtain financing or to
                  fund
                  capital expenditures, mergers and acquisitions or growth.


As
      a
      consequence, operating results for a particular period are difficult to predict.
      Any of the above factors could have a material adverse effect on New Century’s
      business, results of operations, and financial condition.





**Reliance
      on External Financing to Meet Cash Requirements**





The
      Company will continue to rely upon external financing sources to meet the cash
      requirement of its ongoing operations. New Century is currently seeking
      additional capital in 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 Company is unable to raise sufficient
      capital, its business plan will require substantial modification and its
      operations curtailed. These conditions raise substantial doubt about New
      Century’s ability to continue as a going concern. The Company’s continuation as
      a going concern is dependent upon its ability to ultimately attain profitable
      operations, generate sufficient cash flow to meet its obligations, and obtain
      additional financing as may be required.





**Volatile
      Share Price**





The
      Company’s Common Stock has experienced, and may continue to experience,
      substantial price volatility, particularly as a result of variations between
      its
      actual or anticipated financial results and the published expectations of
      analysts and as a result of announcements by its competitors and itself. In
      addition, the stock market has experienced extreme price fluctuations that
      have
      affected the market price of many companies and that have often been unrelated
      to the operating performance of these companies. A major decline in the capital
      markets generally, or in the market price of New Century’s securities may
      negatively impact its ability to make future strategic acquisitions, raise
      capital, issue debt, or retain employees. These factors, as well as general
      economic and political conditions, may in turn have a material adverse effect
      the market price of the Company’s Common Stock.


7


**Seasonality**





The
      Company’s business is subject to certain seasonal fluctuations in sales, with a
      pattern of net sales being lower in the second fiscal quarter, due to plant
      closings in the summer months and vacations. The market for machine tools is
      also sensitive to economic conditions, production capacity utilization and
      the
      general level of business confidence.





**Competition**





The
      market for remanufacturing services for the machine tools is competitive with
      competition from numerous independent rebuild suppliers with various sales
      and
      resource levels. The Company’s believes it possesses a competitive advantage in
      that it employs skilled personnel who have been trained for and have experience
      with these products. Principal competitive factors for the Company’s products
      and services are proprietary technology, customer service, technical support,
      delivery, and price.





**Product
      Liability And Warranty Claims**





We
      may be
      exposed to product liability and warranty claims in the event that the use
      of
      our products results, or is alleged to result, in bodily injury and/or property
      damage or our products actually or allegedly fail to perform as expected. While
      we maintain insurance coverage with respect to certain product liability claims,
      we may not be able to obtain such insurance on acceptable terms in the future,
      if at all, and any such insurance may not provide adequate coverage against
      product liability claims. In addition, product liability claims can be expensive
      to defend and can divert the attention of management and other personnel for
      significant periods of time, regardless of the ultimate outcome. An unsuccessful
      defense of a product liability claim could have an adverse affect on our
      business, results of operations and financial condition and cash flows. Even
      if
      we are successful in defending against a claim relating to our products, claims
      of this nature could cause our customers to lose confidence in our products
      and
      our company. Warranty claims are not covered by insurance, and we may incur
      significant warranty costs in the future for which we would not be reimbursed.




**PENNY
        STOCK**
 
 See
          Part
          II, Item 5.




**Key
      Personnel**





Our
      ability to operate our businesses and implement our strategies depends, in
      part,
      on the efforts of our executive officers and other key employees, particularly
      Messrs. Duquette and Czikmantory. In addition, our future success will depend
      on, among other factors, our ability to attract and retain qualified personnel,
      particularly research professionals, technical sales professionals and
      engineers. The loss of the services of any key employee or the failure to
      attract or retain other qualified personnel could have a material adverse effect
      on our business or business prospects.





**ITEM
      2. DESCRIPTION OF PROPERTY.**





We
      lease
      our headquarters in Santa Fe Springs, California, which expires on 12/31/07,
      and
      conduct our operations at such facilities. We believe that our facilities are
      in
      good condition and provide adequate capacity to meet our needs for the
      foreseeable future.





The
      following table sets forth certain information relating to the Company's
      principal facilities:





LOCATION
              
              PRINCIPAL
                  USES
              
              APPROX
                  SQ. FT.9835
                  Santa Fe Springs Rd.Santa
                  Fe Springs, CA 90670
              
              Manufacturing
              
              44,000
  8




**ITEM
      3. LEGAL PROCEEDINGS.**





The
      Company may be involved from time to time in various claims, lawsuits, disputes
      with third parties, actions involving allegations of discrimination or breach
      of
      contract actions incidental in the normal course of business operations. The
      Company is currently not involved in any such litigation or any pending legal
      proceedings that management believes could have a material adverse effect on
      the
      Company's financial position or results of operations.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





There
      were no matters submitted to security holder for the quarter ended December
      31,
      2006.





**PART
      II**





**ITEM
      5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.**





Our
      common stock trades on the Over-The-Counter Bulletin Board under the symbol
      "NCNC.OB". The following table sets forth the high and low bid prices for the
      shares of common stock as reported on the Over-The-Counter Bulletin Board for
      each quarterly period of the last two fiscal years. The bid prices listed below
      represent prices, adjusted for stock splits, between dealers without adjustments
      for retail markups, breakdowns or commissions and may not represent actual
      transactions.




**For
                  Year Ended 2005****HIGH**
              
              
              **LOW**March
                  31
              
              $
              0.51
              
              $
              0.15June
                    30
              
              
              0.33
              
              
              0.13September
                  30
              
              
              0.73
              
              
              0.21December
                  31
              
              
              0.77
              
              
              0.38


**For
      Year Ended 2006**





**HIGH**
            
            **LOW**March
                31
            
            $
            0.87
            
            $
            0.53June
                30
            
            
            1.21
            
            
            0.45September
                30
            
            
            0.66
            
            
            0.38December
                  31
            
            
            0.40
            
            
            0.16


**DIVIDEND
      POLICY**




We
      have
      not declared any cash dividends on our common stock since inception. Declaration
      of dividends with respect to the common stock is at the discretion of the Board
      of Directors. Any determination to pay dividends will depend upon the financial
      condition, capital requirements, results of operations and other factors deemed
      relevant by the Board of Directors.





At
      December 31, 2006 we had approximately 1,500 shareholders of record of our
      common stock. This figure does not include beneficial holders or common
      stockholder's nominee co-trust name, as we cannot accurately estimate the number
      of these beneficial holders.


9


The
      transfer agent and registrar for our common stock is U.S. Stock Transfer, Los
      Angeles, California.




**PENNY
      STOCK**





Until
      the
      Company's shares qualify for inclusion in the NASDAQ system, the public trading,
      if any, of the Company's common stock will be on the OTC Bulletin Board. As
      a
      result, an investor may find it more difficult to dispose of, or to obtain
      accurate quotations as to the price of, the common stock offered. The Company's
      common stock is subject to provisions of Section 15(g) and Rule 15g-9 of the
      Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
      referred to as the "penny stock rule." Section 15(g) sets forth certain
      requirements for transactions in penny stocks, and Rule 15g-9(d) incorporates
      the definition of "penny stock" that is found in Rule 3a51-1 of the Exchange
      Act. The SEC generally defines "penny stock" to be any equity security that
      has
      a market price less than $5.00 per share, subject to certain exceptions. If
      the
      Company's common stock is deemed to be a penny stock, trading in the shares
      will
      be subject to additional sales practice requirements on broker-dealers who
      sell
      penny stock to persons other than established customers and accredited
      investors. "Accredited investors" are persons with assets in excess of
      $1,000,000 or annual income exceeding $200,000 or $300,000 together with their
      spouse. For transactions covered by these rules, broker-dealers must make a
      special suitability determination for the purchase of such security and must
      have the purchaser's written consent to the transaction prior to the purchase.
      Additionally, for any transaction involving a penny stock, unless exempt, the
      rules require the delivery, prior to the first transaction, of a risk disclosure
      document, prepared by the SEC, relating to the penny stock market. A
      broker-dealer also must disclose the commissions payable to both the
      broker-dealer and the registered representative, and current quotations for
      the
      securities. Finally, monthly statements must be sent disclosing recent price
      information for the penny stocks held in an account and information on the
      limited market in penny stocks. Consequently, these rules may restrict the
      ability of a broker-dealer to trade and/or maintain a market in the Company's
      common stock and may affect the ability of the Company's shareholders to sell
      their shares.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





**PREFERRED
      STOCK**





In
      June
      2006, holders of the Company's Preferred C converted 1,200 shares into 20,000
      shares of common stock. There were no other transactions related to preferred
      stock .





**COMMON
      STOCK**





**Related
      to Motivated Minds Convertible Note**




In
      connection with the initial issuance of the Motivated Minds convertible
      note on
      February 15, 2006, the Company issued 30,000 shares of common stock to the
      note
      holder. The proceeds of the note were allocated to the common shares using
      Relative Fair Value allocation method in accordance with APB No.14, resulting
      in
      debt discount of approximately $9,600, which was amortized over the life of
      the
      Note.




On
      March
      7, 2006, in connection with the Motivated Minds convertible
      note dated
      February 15, 2006, the Company issued 30,000 restricted shares of common stock
      to Motivated Minds for extension of the maturity date of $300,000 of principal
      balance of the note until May 15, 2006. The common stock was recorded at the
      estimated fair value of the common stock on the date of the transaction totaling
      approximately $18,900, which was amortized as interest expense over three
      months.




On
      April
      25, 2006, the Company issued 9,091 shares of common stock for conversion of
      $6,000 of interest due on Motivated Minds Note.  The
      common stock conversion price was recorded at $0.66 in accordance with the
      terms
      of the convertible note agreement.


10




On
      May
      15, 2006, the Company issued 10,227 shares of common stock for conversion of
      $6,750 of interest due on Motivated Minds Note. The common stock conversion
      price was recorded at $0.66 in accordance with the terms of the convertible
      note
      agreement.




On
      July
      25, 2006, in connection with the Motivated Minds convertible note dated February
      15, 2006, the Company issued 45,000 restricted shares of common stock to
      Motivated Minds for extension of the maturity date of $150,000 of principal
      balance of the note until August 16, 2006, and the remaining principal balance
      of $150,000 of the note until October 16, 2006. The common stock was recorded
      at
      the estimated fair value of the common stock on the date of the transaction
      totaling approximately $23,400, which was amortized as interest expense over
      three months.




On
      November 14, 2006, in connection with the Motivated Minds convertible note
      dated
      February 15, 2006, the Company issued 30,000 restricted shares of common stock
      to Motivated Minds for extension of the maturity date of $150,000 of principal
      balance of the note until December 16, 2006. The common stock was recorded
      at
      the estimated fair value of the common stock on the date of the transaction
      totaling approximately $6,000, which was expensed immediately as interest
      expense.





**Related
      to CAMOFI Secured Convertible Note**





In
      connection with the initial issuance of the CAMOFI
      secured convertible **** n ote on
      February 28, 2006, the Company issued 250,000 shares of common stock to the
      placement agent. The common stock was recorded at the estimated fair value
      of
      the common stock on the date of the transaction totaling approximately $157,500,
      which was recorded as deferred financing cost and is amortized over 3 years,
      the
      life of the note. As of December 31, 2006, a total of $43,750 was amortized
      to
      interest expense.





**Other**





During
      March 2006, the Company paid $900,000 in cash and issued 250,000 shares of
      restricted common stock to one of its creditors to settle $750,000 outstanding
      principal balance and $291,050 accrued interest on two defaulted notes payable.
      The Company recorded the stock at fair value (estimated based on the trading
      price of the Company's stock on the date of grant) totaling $157,500. The value
      of the stock issued and the cash paid exceeded the value of the amount of the
      outstanding debt and accrued interest by approximately $17,000. Such amount
      which was recorded as a loss on debt extinguishment.




In
      July
      2006, the Company issued 100,000 shares of common stock valued at $41,000 (based
      on the market price of the shares) to a third party for corporate finance and
      investor relations services under a one month contract. The common stock was
      recorded at the estimated fair value of the common stock on the date of the
      transaction and expensed immediately.





In
      December 2006, the Company issued 150,000 shares of common stock valued at
      $28,500 (based on the market price of the shares) to a third party for public
      relations consulting services under a 14 day contract. The common stock was
      recorded at the estimated fair value of the common stock on the date of the
      transaction and approximately $28,500. At December 31, 2006, In accordance
      with
      the EITF 96-18, the Company performed a recalculation of the deferred consulting
      fees based on the fair value stock price at the ending of reporting period,
      and
      adjusted the fees to $31,500. The additional $3,000 difference was recorded
      as
      deferred consulting fees and is being amortized over the remaining term of
      the
      contract. At December 31, 2006, the remaining deferred consulting fees under
      this contract totaled $9,000.





On
      October 11, 2005, the Company issued 100,000 shares of restricted common stock
      to a consultant for corporate finance and investor relations services under
      a
      one year consulting agreement. The Company recorded the fair value of the common
      stock (based on the trading price of the Company's stock on the date of
      issuance) totaling $41,000 as deferred consulting fees and is amortizing such
      amount over the twelve month term of the agreement. Due to a significant
      increase of the Company’s stock price from issuance to the date when the
      services were deemed completed, at December 31, 2005, in accordance with the
      EITF 96-18, the Company performed a recalculation of the deferred consulting
      fees based on the December 31, 2005 fair value stock price, and adjusted the
      fees to $62,000. The additional $21,000 difference was recorded as deferred
      consulting fees and was amortized over the remaining term of the contract.
      At
      December 31, 2005, the remaining deferred consulting fees under this contract
      totaled $49,083. At December 31, 2006, the remaining deferred consulting fees
      under this contract were amortized entirely during the year.


11


On
      October 26, 2005, the Company issued 100,000 shares of restricted common stock
      to a consultant for corporate finance and investor relations services under
      a
      one year consulting agreement. The Company recorded the fair value of the
      transaction (based on the trading price of the Company's stock on the date
      of
      issuance $42,000 as deferred consulting fees and was amortizing such amount
      over
      the twelve month term of the agreement. Due to a significant increase of the
      Company’s stock price from issuance to the date when the services were deemed
      completed, at December 31, 2005, in accordance with the EITF 96-18, the Company
      performed a recalculation of the deferred consulting fees based on the December
      31, 2005 fair value stock price, and adjusted the fees to $62,000. The
      additional $20,000 difference was recorded as deferred consulting fees and
      was
      amortized over the remaining term of the contract. At December 31, 2005, the
      remaining deferred consulting fees under this contract totaled $50,633. At
      December 31, 2006, the remaining deferred consulting fees under this contract
      were amortized entirely during the year.





On
      October 27, 2005, the Company issued 300,000 shares of restricted common stock
      to a consultant for corporate finance and investor relations services under
      a
      one year consulting agreement. The Company recorded the fair value of the common
      stock (based on the trading price of the Company's stock on the date of
      issuance) totaling $132,000 as deferred consulting fees and is amortizing such
      amount over the twelve month term of the agreement. Due to a significant
      increase of the Company’s stock price from issuance to the end of the reporting
      period, in accordance with the EITF 96-18, the Company performed a recalculation
      of the deferred consulting fees based on the December 31, 2005 fair value stock
      price, and adjusted the fees to $186,000. The additional $54,000 difference
      was
      recorded as deferred consulting fees and was amortized over the remaining term
      of the contract. At December 31, 2005, the remaining deferred consulting fees
      under this contract totaled $155,000. On November 1, 2006, the date the services
      were completed, in accordance with the EITF 96-18, the Company performed a
      recalculation of the deferred consulting fees based on the fair value stock
      price at the completion of contract, and adjusted the deferred consulting fees
      to $60,000. The remaining deffered consulting fees were fully amortized in
      2006.





In
      December 2005, the Company issued 75,000 shares of common stock to a consultant
      for consulting services. However, the management inadvertently did not record
      the transaction. In December 2006, the Company recorded issuance of the 75,000
      shares of common stock. The common stock was recorded at the estimated fair
      value of the common stock on the date of the transaction and approximately
      $14,250 was expensed immediately.





**WARRANTS**





In
      February 2006, the Company issued 454,545 warrants shares of common stock to
      the
      holder of the note in connection with the issuance of the Motivated Minds
      convertible note dated February 15, 2006. The Warrants are exercisable at a price of $0.66 per share and expire on
      February 14, 2011. Also,
      the
      Company issued an aggregate of 45,454 warrants shares of common stock to the
      Placement Agents and their assignees. The warrants are exercisable at a price
      of
      $.66 per share and expire on February 14, 2011. (See
      Note 6).





In
      February 2006, the Company issued 3,476,190 warrants shares of common stock
      to
      the holder of the note in connection with the issuance of the  CAMOFI
      convertible note dated February 28, 2006. The Warrants are exercisable at a price of $0.63 per share and will expire
      on
      February 28, 2011. Also, the Company issued an aggregate of 722,539 warrants
      to
      the Placement Agent and its assignee. The warrants are exercisable at a price
      of
      $.63 per share and expire on February 28, 2011. (See Note 6).





In
      March
      2006, the Company issued 150,000 warrants valued at $127,500 (estimated using
      a
      Black-Scholes option pricing model on the dates of grant) to a third party
      for
      consulting services under an agreement to write an Executive Informational
      Overview and 4 quaterly updates. The Company recorded the fair value of the
      common stock totaling $127,500 as deferred consulting fees and amortized such
      amount over the twelve month term of the agreement. In accordance with the
      EITF
      96-18, the Company performed a recalculation of the deferred consulting fees
      based on the December 31, 2006 fair value stock price, and adjusted the fees
      to
      $31,500. The $96,000 difference was recorded as a decrease in deferred
      consulting fees.


12


On
      December 19, 2006, the Company entered into an Amended and Restated Registration
      Rights Agreement (the “Amendment”) with CAMOFI. Pursuant to the Amendment,
      CAMOFI agreed to waive any liquidated damages accrued prior to the date of
      the
      Amendment. An aggregate of 1,500,000 warrants valued at $300,000 (based on
      the
      stock trading price on the date of grant in accordance with EITF 96-18) were
      issued to the Noteholder as a consideration of the Amendment. The warrants
      are
      exercisable at a price of $.35 per share and expire on December 19, 2013. (See
      Note 6).




**STOCK
      OPTIONS**





Under
      the
      terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase
      an aggregate of 5,000,000 shares of common stock may be issued to key employees,
      as defined. 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.





Under
      the
      terms of the Company's non-statutory stock option plan ("NSSO"), options to
      purchase an aggregate of 1,350,000 shares of common stock may be issued to
      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 vest on the date of grant.





During
      the year ended December 31, 2006, the Company granted 2,000,000 stock options
      under the terms of the Company's Incentive Stock Option Plan ("ISOP"). Also,
      the
      Company granted 6,371,455 warrants, related to financing activities or
      consulting services.





The
      following is a status of the stock options and warrants outstanding at December
      31, 2006 and the changes during the two years then ended:





Year
                Ended
            
            Year
                EndedDecember
                31,
            
            December
                31,2006
            
            2005WeightedOptions
                and
            
            Weighted
            
            Options
                and
            
            AverageWarrants
            
            Average
                Price
            
            Warrants
            
            PriceOutstanding,
                beginning of year
            
            
            1,468,500
            
            $
            0.40
            
            
            1,711,583
            
            $
            1.75Granted
            
            
            8,371,455
            
            $
            0.48
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cancelled/Terminated
            
            
            (186,227
            )
            
            (0.87
            )
            
            (243,083
            )
            
            (9.88
            )Total
                Outstanding, end of year
            
            
            9,653,728
            
            $
            0.46
            
            
            1,468,500
            
            $
            0.40Exercisable
            
            
            7,653,728
            
            
            0.53
            
            
            1,468,500
            
            
            0.40


13




The
      following table summarizes information related to stock options outstanding
      at
      December 31, 2006:





EQUITY
                COMPENSATION PLAN INFORMATIONNUMBER
                OF SECURITIES TO BE
              ISSUED
                UPON EXERCISE OF
              OUTSTANDING
                OPTIONS,
              WARRANTS
                AND RIGHTS
            
            WEIGHTED-AVERAGE
              EXERCISE
                PRICE OF
              OUTSTANDING
                OPTIONS,
              WARRANTS
                AND RIGHTS
            
            NUMBER
                OF SECURITIES
              REMAINING
                AVAILABLE FOR
              FUTURE
                ISSUANCE UNDER
              EQUITY
                COMPENSATION PLANS
              (EXCLUDING
                SECURITIES REFLECTED
              IN
                COLUMN(A))(A)
            
            (B)
            
            (C)Equity
                compensation plans approved bysecurity
                holders
            
            
            3,250,000
            
            
            0.25
            
            
            1,750,000Equity
                compensation plans not approvedby
                security holders
            
            
            6,403,728
            
            
            0.57
            
            
            --Total
            
            
            9,653,728
            
            
            0.46
            
            
            1,750,000




From
        time
        to time, the Company issues warrants to employees and to third parties pursuant
        to various agreements, which are not approved by the shareholders.





See
      discussion of Plan approval by the shareholders in the accompanying financial
      statements.




**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.**





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





**OVERVIEW**





The
      earnings of New Century Companies for the year ended 2006 were negative as
      a
      result of high interest expenses resulting from debt discount amortization
      related to two convertible notes, debt expenses, and penalties associated with
      late payments on accounts payable. 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. The Company's growth strategy also
      includes strategic acquisitions in addition to growing the current business.
      A
      significant acquisition will require additional financing.


14


**RESULTS
      OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2006 COMPARED TO DECEMBER 31,
      2005.**





Revenues.
      New Century generated revenues of $8,318,957 for the fiscal year ended December
      31, 2006, which was a 38% increase from $6,038,459 for the fiscal year ended
      December 31, 2005. The increase is the result of an increase in sales based
      on
      higher selling prices of New Century machines and less availability for
      competitive machines.





Gross
      Profit. There was a 10% increase in gross profit for the fiscal year ended
      December 31, 2006, of $166,228, due to the increased volume of sales and higher
      selling prices.





Net
      Loss.
      Net income decreased to a loss of ($1,051,744) for the fiscal year ended
      December 31, 2006 compared to net income of $668,359 for the fiscal year ended
      December 31, 2005. The decrease in net income is primarily attributed to
      approximately $2,150,000 increase in interest including debt discount
      amortization and a $910,074 increase in general and administrative expenses,
      due
      to bad debt expenses, legal expenses associated with SB2 filings, investor
      relations cost, and penalties on late payments on accounts payable.





Interest
      Expense. Interest expense for the fiscal year ending December 31, 2006 increased
      to $2,363,187, compared to $215,827 for the period ended December 31, 2005.
      The
      increase of approximately $2.1 million is primarily the result of $1,320,522
      debt discount amortization, $347,980 deferred financing cost, and $300,000
      fair
      value of 1.5 million warrants granted as a consideration for waiver of accrued
      the liquidated damages, all related to $3.8 million convertible notes issued
      in
      the first quarter of 2006.





**RESULTS
      OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2005 COMPARED TO DECEMBER 31,
      2004.**





Revenues.
      New Century generated revenues of $6,038,459 for the fiscal year ended December
      31, 2005, which was a 31% increase from $4,605,813 for the fiscal year ended
      December 31, 2004. The increase is the result of an increase in sales based
      on
      less availability for competitive machines.





Gross
      Profit. There was a substantial increase in gross profit for the fiscal year
      ended December 31, 2005, of $2,171,956, due to the increased revenues from
      higher selling prices and a $739,310 decrease in cost of sales. The decrease
      in
      cost of sales is principally related to more efficient use of material and
      labor
      resources. Gross profit was $1,714,970, compared to a loss of $(456,986) from
      the corresponding period in 2004.





Net
      Income . Net income increased to $668,359 for the fiscal year ended December
      31,
      2005 compared to a net loss of $1,423,359 for the fiscal year ended December
      31,
      2004. The increase in net income is primarily attributed to a $2,352,442
      increase in operating income, the increase in revenues and the decrease in
      cost
      of sales.





Interest
      Expense. Interest expense for the fiscal year ending December 31, 2005 increased
      to $215,827, compared to $181,468 for the period ended December 31, 2004. The
      increase of 30% is primarily the result of $47,500 amortization of shares of
      common stock issued to a Note Payable holder as a consideration for agreement
      to
      extend the repayment of the note.





**FINANCIAL
      CONDITION, LIQUIDITY, CAPITAL RESOURCES**





Net
      cash
      increase during the fiscal year ended 2006 was $53,318. For the year ended
      December 31, 2006, the cash provided from financing activities was $1,696,058,
      compared with $44,730 used cash in financing activities in the prior year.
      The
      increase of cash provided by financing activities is primarily due to $3,800,000
      proceeds from the issuance of two convertible notes in 2005, compared to no
      cash
      proceeds from debt or equity in 2005. No cash was used in or provided by
      investing activities in 2005 or 2006.





Net
      cash
      used in operating activities increase from approximately $84,000 in 2005 to
      approximately $1,643,000 in 2006. The increase is primarily due to principal
      and
      interest repayments on convertible debt. The Company’s management
      believes that the cash flow from operations will be sufficient to meet the
      Company’s
      capital needs over the near term.


15


**INFLATION
      AND CHANGING PRICES**





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





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      have
      no off-balance sheet arrangements, as defined in Regulation S-B Section 303.





**GOING
      CONCERN**





The
      Company's independent registered certified public accounting firm has
      stated in its report included in this Form 10-KSB, that the Company has
      incurred operating losses and has a significant stockholders' deficit. These
      conditions, among others, raise substantial doubt about the Company's ability
      to
      continue as a going concern.





**CRITICAL
      ACCOUNTING POLICIES**





The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make judgments, assumptions and estimates that affect
      the
      amounts reported in the our consolidated financial statements and the
      accompanying notes. The amounts of assets and liabilities reported on our
      balance sheet and the amounts of revenues and expenses reported for each of
      our
      fiscal periods are affected by estimates and assumptions, which are used for,
      but not limited to, the accounting for revenue recognition, accounts receivable,
      doubtful accounts and inventories. Actual results could differ from these
      estimates. The following critical accounting policies are significantly affected
      by judgments, assumptions and estimates used in the preparation of the financial
      statements:





**Revenue
      Recognition**





Service
      revenues are billed and recognized in the period the services are rendered.





The
      Company accounts for shipping and handling fees and costs in accordance with
      EITF 00-10 "Accounting for Shipping and Handling Fees and Costs." Such fees
      and
      costs incurred by the Company are immaterial to the operations of the Company.





In
      accordance with SFAS 48, "Revenue Recognition when Right of Return Exists,"
      revenue is recorded net of an estimate of markdowns, price concessions and
      warranty costs. Such reserve is based on management's evaluation of historical
      experience, current industry trends and estimated costs.





In
      December 1999, the Securities and Exchange Commission issued Staff Accounting
      Bulletin 101 ("SAB 101"), "Revenue Recognition," as amended by SAB No. 104
      which
      outlines the basic criteria that must be met to recognize revenue and provides
      guidance for presentation of revenue and for disclosure related to revenue
      recognition policies in financial statements filed with the Securities and
      Exchange Commission. Management believes that the Company's revenue recognition
      policy for services and product sales conforms to SAB 101 amended by SAB 104.
      The Company recognizes revenue of long-term contracts pursuant to SOP 81-1.





**Method
      of Accounting for Long-Term Contracts**





The
      Company uses the percentage-of-completion method of accounting to account for
      long-term contracts and, therefore, takes into account the cost, estimated
      earnings and revenue to date on fixed-fee contracts not yet completed. The
      percentage-of-completion method is used because management considers total
      cost
      to be the best available measure of progress on the contracts. Because of
      inherent uncertainties in estimating costs, it is at least reasonably possible
      that the estimates used will change within the near term.


16





The
      amount of revenue recognized at the statement date is the portion of the total
      contract price that the cost expended to date bears to the anticipated final
      cost, based on current estimates of cost to complete. It is not related to
      the
      progress billings to customers. Contract costs include all materials, direct
      labor, machinery, subcontract costs and allocations of indirect overhead.





Because
      long-term contracts may extend over a period of time, changes in job
      performance, changes in job conditions and revisions of estimates of cost and
      earnings during the course of the work are reflected in the accounting period
      in
      which the facts that require the revision become known. At the time a loss
      on a
      contract becomes known, the entire amount of the estimated ultimate loss is
      recognized in the consolidated financial statements.





Contracts
      that are substantially complete are considered closed for consolidated financial
      statement purposes. Revenue earned on contracts in progress in excess of
      billings (under billings) is classified as a current asset. Amounts billed
      in
      excess of revenue earned (overbillings) are classified as a current liability.





**Estimates**





Critical
      estimates made by management are, among others, deferred tax asset valuation
      allowances, realization of inventories, collectibility of contracts receivable
      and the estimating of costs for long-term construction contracts. Actual results
      could differ from those estimates.




**Classification
      Of Warrant Obligation**





In
      connection with the issuance of the 12% Senior Secured Convertible Notes (See
      Note 6), the Company has an obligation to file registration statements covering
      the Registrable Securities, as defined in the Amended Registration Rights
      Agreement. The obligation to file the registration statement meets the criteria
      of an embedded derivative to be bifurcated pursuant to SFAS No. 133, "Accounting
      for Derivative Instruments and Hedging Activities", as amended. Under this
      transaction, the Company is obligated to register for resale the common shares
      underlying the warrants, and as a result, the embedded derivative associated
      with this warrant obligation does not meet the scope exception of paragraph
      11(a) of SFAS No. 133. We evaluated the warrant classification in accordance
      with EITF 00-19 and concluded that the warrants meet all the criteria required
      to be classified as equity.





**Waiver
      Of Preferred Dividend**





As
      of
      December 31, 2005, the Company accumulated dividends payable totaling $565,875.
      In March 2006, ten of the Company’s preferred shareholders elected to waive
      their rights to receive dividends. Therefore, the Company recorded a decrease
      in
      dividends payable of $287,875. At December 31, 2006, the Company had a total
      of
      27,780 preferred shares Series C and 11,640 preferred shares Series D issued
      and
      outstanding. As of December 31, 2006, the Company accumulated dividends totaling
      $362,800.





**Other
      Significant Accounting Policies**





Other
      significant accounting policies not involving the same level of measurement
      uncertainties as those discussed above, are nevertheless important to an
      understanding of the financial statements. The policies related to consolidation
      and loss contingencies require difficult judgments on complex matters that
      are
      often subject to multiple sources of authoritative guidance. Certain of these
      matters are among topics currently under reexamination by accounting standards
      setters and regulators. Although no specific conclusions reached by these
      standards setters appear likely to cause a material change in our accounting
      policies, outcomes cannot be predicted with confidence. Also see Note 1 of
      Notes
      to Consolidated Financial Statements, Summary of Significant Accounting
      Policies, which discusses accounting policies that must be selected by
      management when there are acceptable alternatives.


17


**ITEM
      7. FINANCIAL STATEMENTS.**





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


**PART
      III**





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





None.





**ITEM
      8A. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES**





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we evaluated
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act
      as of
      a date (the "Evaluation Date") within 90 days prior to filing the Company's
      December 31, 2006 Form 10-KSB. Based upon that evaluation, the CEO and CFO
      concluded that, as of December 31, 2006, our disclosure controls and procedures
      were not effective (see Exhibit 31.1) in timely alerting management
      to the material information relating to us (or our consolidated subsidiaries)
      required to be included in our periodic filings with the SEC.





**CHANGES
      IN CONTROLS AND PROCEDURES**





There
      were no significant changes made in our internal controls over financial
      reporting during the quarter ended December 31, 2006 that have materially
      affected or are reasonably likely to materially affect these controls.





**LIMITATIONS
      ON THE EFFECTIVENESS OF INTERNAL CONTROL**





The
      Company's management, including the CEO, does not expect that our disclosure
      controls and procedures or our internal control over financial reporting will
      necessarily prevent all fraud and material errors. An internal control system,
      no matter how well conceived and operated, can provide only reasonable, not
      absolute, assurance that the objectives of the control system are met. Further,
      the design of a control system must reflect the fact that there are resource
      constraints, and the benefits of controls must be considered relative to their
      costs. Because of the inherent limitations on all internal control systems,
      no
      evaluation of controls can provide absolute assurance that all control issues
      and instances of fraud, if any, within the Company have been detected. These
      inherent limitations include the realities that judgments in decision-making
      can
      be faulty, and that breakdowns can occur because of simple error or mistake.
      Additionally, controls can be circumvented by the individual acts of some
      persons, by collusion of two or more people, and/or by management override
      of
      the control. The design of any system of internal control is also based in
      part
      upon certain assumptions about the likelihood of future events, and there can
      be
      no assurance that any design will succeed in achieving its stated goals under
      all potential future conditions. Over time, controls may become inadequate
      because of changes in circumstances, and/or the degree of compliance with the
      policies and procedures may deteriorate. Because of the inherent limitations
      in
      a cost-effective internal control system, financial reporting misstatements
      due
      to error or fraud may occur and not be detected on a timely basis.


18


**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(A) OF THE SECURITIES EXCHANGE ACT.**





The
      following table and text sets forth the names and ages of all directors and
      executive officers of the Company and the key management personnel as of
      December 31, 2005. The Board of Directors of the Company is comprised of only
      one class. All of the directors will serve until the next annual meeting of
      stockholders and until their successors are elected and qualified, or until
      their earlier death, retirement, resignation or removal. Executive officers
      serve at the discretion of the Board of Directors, and are appointed to serve
      until the first Board of Directors meeting following the annual meeting of
      stockholders. Also provided is a brief description of the business experience
      of
      each director and executive officer and the key management personnel during
      the
      past five years and an indication of directorships held by each director in
      other companies subject to the reporting requirements under the Federal
      securities laws.





NAME
            
            AGE
            
            POSITIONDavid
                Duquette
            
            60
            
            Chairman
                of the Board, Chief Financial Officer, President and
                DirectorJosef
                Czikmantori
            
            51
            
            Secretary
                and Director




DAVID
      DUQUETTE. Mr. Duquette has served as the Chairman of the Board, President,
      Chief
      Financial Officer and Director of the Company since May 25, 2001. Mr. Duquette
      has been in the CNC machine tool manufacturing and remanufacturing business
      since 1967. From 1962 to 1965, he studied Electrical Engineering at the
      University of Wisconsin. Mr. Duquette founded New Century Remanufacturing in
      1996. Prior to that year, he managed Orange Coast Rebuilding for approximately
      8
      years. Mr. Duquette was President of U.S. Machine Tools from 1969 to 1985.





JOSEF
      CZIKMANTORI. Mr. Czikmantori has served as Secretary and Director of the Company
      since May 25, 2001. Mr. Czikmantori was born in Romania. He completed 3 years
      of
      Technical College in Romania and then worked for United Machine Tool, which
      manufactured metal cutting machinery. He joined Mr. David Duquette at Orange
      Coast Machine Tools. He is a co-founder of New Century Remanufacturing.





Directors
      receive no compensation for serving on the Board of Directors.





**FAMILY
      RELATIONSHIPS.**





There
      are
      no family relationships between or among the directors, executive officers
      or
      persons nominated or charged by the Company to become directors or executive
      officers.





**INVOLVEMENT
      IN LEGAL PROCEEDINGS.**





To
      the
      best of the Company's knowledge, during the past five years, none of the
      following occurred with respect to a present or former director or executive
      officer of the Company: (1) any bankruptcy petition filed by or against any
      business of which such person was a general partner or executive officer either
      at the time of the bankruptcy or within two years prior to that time; (2) any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor offenses); (3) being
      subject to any order, judgment or decree, not subsequently reversed, suspended
      or vacated, of any court of any competent jurisdiction, permanently or
      temporarily enjoining, barring, suspending or otherwise limiting his involvement
      in any type of business, securities or banking activities; and (4) being found
      by a court of competent jurisdiction (in a civil action), the SEC or the
      Commodities Futures Trading Commission to have violated a federal or state
      securities or commodities law, and the judgment has not been reversed, suspended
      or vacated.


19


SECTION
      16(A) BENEFICIAL OWNERSHIP COMPLIANCE.





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
      executive officers and directors and persons who own more than 10% of a
      registered class of the Company's equity securities to file with the Securities
      and Exchange Commission initial statements of beneficial ownership, reports
      of
      changes in ownership and annual reports concerning their ownership of common
      stock and other equity securities of the Company, on Forms 3, 4 and 5,
      respectively. Executive officers, directors and greater than 10% shareholders
      are required by Commission regulations to furnish the Company with copies of
      all
      Section 16(a) reports they file. To the best of the Company's knowledge (based
      solely upon a review of the Forms 3, 4 and 5 filed), no officer, director or
      10%
      beneficial shareholder failed to file on a timely basis for the fiscal year
      ended December 31, 2006 any reports required by Section 16(a) of the Securities
      Exchange Act of 1934, as amended.





**CODE
      OF ETHICS**


The
      Company management communicates values and ethical standards during company
      wide
      meetings. Such standards are outlined in the human resource manual of the
      company, “Code of Business Practices and Ethics” section.





**AUDIT
      COMMITTEE FINANCIAL EXPERT**


The
      Company does not have an audit committee. Since our securities are not currently
      listed on or with a national securities exchange or national securities
      association, we are not required to have an independent audit committee.
      Therefore, the Company has not designated an audit committee financial expert.
      The Company currently is in the process of identifying independent audit
      committee members, including a financial expert to serve on our audit committee
      and we expect to continue this process in 2007. Because of our size, we do
      not
      have an audit committee, compensation committee or nominating committee.





**STOCKHOLDER
      COMMUNICATIONS**


Stockholders
      interested in communicating directly with the Board of Directors, or specified
      individual directors, my write to us at 9835 Santa Fe Springs Rd., Santa Fe
      Springs, CA 90670. Mr. David Duquette will review all such correspondence and
      will regularly forward to the Board copies of all such correspondence that
      deals
      with the functions of the Board.




**ITEM
      10. EXECUTIVE COMPENSATION.**





**SUMMARY
      COMPENSATION TABLE**





The
      following Summary Compensation Table sets forth the compensation earned by
      the
      Company's Chief Executive Officer and the other executive officer who were
      serving as such as of December 31, 2006, for services rendered in all capacity
      for that fiscal year. There are not any other employees having responsibility
      for significant policy decision within the company.




**Name
                and**
              **Principal**
              **Position**
            
            **Year**
            
            **Salary
                ($)**
            
            **Bonus ($)**
            
            **Option**
              **Awards**
              **(1)**
              **($)**
            **All
                Other**
              **Compensation**
              **($)**
            
            **Total**
              **($)****David
                Duquette,**Chief
                Executive Officer,
            
            2006
            
            155,000
            
            0
            
            21,600(2)
            0
            
            176,600Chief
                Financial Officer
            
            2005
            
            101,273
            
            0
            
            0
            0
            
            101,273and
                President
            
            2004
            
            180,000
            
            0
            
            0
            0
            
            180,000**Josef
                Czikmantory**Vice
                President,
            
            2006
            
            88,350
            
            0
            
            10,800(3)
            0
            
            99,150Secretary
                Officer
            
            2005
            
            25,650
            
            0
            
            0
            0
            
            25,6502004
            
            76,950
            
            0
            
            0
            0
            
            76,950


20


(1)
      Valuation based on the dollar amount of option grants recognized for financial
      statement reporting purposes pursuant to FAS 123(R) with respect to
      2006.




(2)
      Mr.
      David Duquette received a stock option grant of 1,000,000 shares on November
      13,
      2006 at an exercise price of $0.20 per share, none of which were vested and
      exercisable as of December 31, 2006.




(3)
      Mr.
      Josef Czikmantory received a stock option grant of 500,000 shares on November
      13, 2006 at an exercise price of $0.20 per share, none of which were vested
      and
      exercisable as of December 31, 2006.





**2006
      GRANTS OF PLAN-BASED AWARDS TABLE**


**Estimated Future Payouts Under**
                **Equity
                  Incentive Plan Awards****Name**
              
              **Grant**
                **Date**
              
              **Threshold**
                **($)**
              
              **Target**
                **($)**
              
              **Maximum**
                **($)**
              
              **Exercise or**
                **Base
                  Price**
                **of
                  Option**
                **Awards**
                **($ / Sh)**
              
              **Closing**
                **Price on**
                **Grant**
                **Date**
                **($ / Sh)**
              
              **Grant
                  Date Fair**
                **Value
                  of Stock and Option Awards ($)**(1)
              
              (2)
              
              (3)**David
                  Duquette**
              
              
              **09/12/03**
              
              
              72,000
              
              
              -
              
              
              100,000
              
              
              0.25
              
              
              -
              
              
              0.18**11/13/06**
              
              
              158,400
              
              
              158,400
              
              
              178,400
              
              
              0.20
              
              
              0.18
              
              
              0.18**Josef
                  Czikmantory**
              
              
              **09/12/03**
              
              
              27,000
              
              
              -
              
              
              37,500
              
              
              0.25
              
              
              -
              
              
              0.18**11/13/06**
              
              
              79,200
              
              
              169,200
              
              
              189,200
              
              
              0.20
              
              
              0.18
              
              
              0.18




(1)
      December 31, 2006 remaining compensation expense of options evaluated using
      fair
      value at grant date.




(2)
      December 31, 2006 remaining compensation expense of options evaluated using
      closing price on grant date.




(3)
      December 31, 2006 unexercised options valuated at exercise price of
      options.




**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**


**Option
                  Awards****Name**
              
              **Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **(#)**
              
              **Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **(#)**
              
              **Equity**
                **Incentive**
                **Plan Awards:**
                **Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Unearned**
                **Options**
                **(#)**
              
              **Option**
                **Exercise**
                **Price**
                **($)**
              
              **Option**
                **Expiration**
                **Date****Exercisable**
              
              **Unexercisable****David
                  Duquette****(1)**
              
              
              400,000
              
              
              0
              
              
              0
              
              
              0.25
              
              
              09/12/08**(2)**
              
              
              0
              
              
              1,000,000
              
              
              0
              
              
              0.20
              
              
              11/13/11**Josef
                  Czikmantory****(1)**
              
              
              150,000
              
              
              0
              
              
              0
              
              
              0.25
              
              
              09/12/08**(2)**
              
              
              0
              
              
              500,000
              
              
              0
              
              
              0.20
              
              
              11/13/11


21


(1)
      These
      options were fully vested as of December 31, 2006.




(2)
      These
      options will vest in one installment on December 1, 2007.




**Pension
      Benefits**





We
      do not
      sponsor any qualified or non-qualified defined benefit plans.





**Nonqualified
      Deferred Compensation**





We
      do not
      maintain any non-qualified defined contribution or deferred compensation
      plans.





**LONG-TERM
      INCENTIVE PLANS**





As
      of
      December 31, 2006 there is no long-term incentive plan.


The
      Company have no employment agreements with its executive
      officers.





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**





The
      following table sets forth the number of shares of common stock beneficially
      owned as of December 31, 2005 by (i) those persons or groups known to the
      Company who will beneficially own more than 5% of the Company's common stock;
      (ii) each director and director nominee; (iii) each executive officer; and,
      (iv)
      all directors and executive officers as a group. The information is determined
      in accordance with Rule 13(d)-3 promulgated under the Exchange Act based upon
      information furnished by persons listed or contained in filings made by them
      with the Securities and Exchange Commission by information provided by such
      persons directly to the Company. Except as indicated below, the stockholders
      listed possess sole voting and investment power with respect to their shares.





PERCENTAGE
                OFNAME
                OF BENEFICIAL OWNER
            
            NO.
                OF SHARES
            
            OWNERSHIPDavid
                Duquette
            
            1,433,334
                (1)
            
            12%Josef
                Czikmantori
            
            650,000
            
            5%Officers
                and Directors as a Group (2 persons)
            
            2,083,334
                (2)
            
            17%





Based
      on
      12,264,656 shares outstanding. Common stock subject to options or warrants
      that
      are currently exercisable or exercisable within 60 days of December 31, 2006
      are
      deemed to be outstanding and to be beneficially owned by the holder thereof
      for
      the purpose of computing the percentage ownership of such person but are not
      treated as outstanding for the purpose of computing the percentage ownership
      of
      any other person.





(1)
      Includes options to purchase 400,000 shares (ISOP).





(2)
      Includes options to purchase 150,000 shares (ISOP).


22


**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**





**NOTES
      RECEIVABLE FROM STOCKHOLDERS**





As
      of
      December 31, 2006, the Company had loans to our officers for $525,402, including
      accrued interest. The loans accrue interest at 6% and are due on demand. The
      Company has reclassified the notes receivable from stockholders to stockholders'
      equity as such amounts have not been repaid during the current year. The
      stockholders have shown the ability to repay the loans and intend on repaying
      such amounts in the future. For each of the years ended December 31, 2006 and
      2005, total interest income from notes receivable from stockholders approximated
      $20,000.





**ITEM
      13. EXHIBITS.**




**EXHIBIT**
              **NUMBER**
            **DESCRIPTION**2.1
            Share
                Exchange Agreement dated as of December 18, 2000. Incorporated herein
                by
                reference from the Company's filing on Form 8-K filed on August 23,
                2000.3.1
            Certificate
                of Incorporation as filed with the Delaware Secretary of State, as
                amended. incorporated by reference to Exhibit 2.1 to Company's
                Registration Statement on Form C-18, filed on August 14, 1980. I
                S3.2
            Certificate
                of Amendment to the Certificate of Incorporation as filed with the
                Delaware Secretary of State. Incorporated by reference to 8-K filed
                June
                4, 2003.3.2
            Bylaws.
                Incorporated by reference to Exhibit 2.2 to the Registration Statement
                on
                Form S-18, filed on August 14, 1980.10.1
            Agreement
                and Plan of Merger, dated as of May 25, 2003, by and among
                Internetmercado.com, Inc., New Century Remanufacturing, Inc., New
                Century
                Acquisition Corporation, David Duquette and Josef Czikmantori;
                Incorporated by reference to the Exhibit 2.1 of the 8-K filed June
                4,
                2003.10.2
            Series
                A Convertible Note issued to Motivated Minds, LLC dated February
                28, 2006;
                Incorporated by reference to the Company’s Form SB-2 Registration
                Statement filed on June 8, 2006.10.3
            Common
                Stock Purchase Warrants issued to Motivated Minds, LLC dated February
                28,
                2006; Incorporated by reference to the Company’s Form SB-2 Registration
                Statement filed on June 8, 2006.10.4
            Registration
                Rights Agreement dated February 15, 2006; Incorporated by reference
                to the
                Company’s Form SB-2 Registration Statement filed on June 8,
                2006.10.5
            Securities
                Purchase Agreement between New Century Companies, Inc. and CAMOFI
                Master
                LDC; Incorporated by reference to the Company’s Form 8-K filed on March
                13, 2006.10.6
            12%
                Senior Secured Convertible Note issued by New Century Companies,
                Inc. in
                favor of CAMOFI Master LDC; Incorporated by reference to the Company’s
                Form 8-K filed on March 13, 2006.


23





10.7
            Common
                Stock Purchase Warrant issued to CAMOFI Master LDC; Incorporated
                by
                reference to the Company’s Form 8-K filed on March 13, 2006.10.8
            Registration
                Rights Agreement between New Century Companies, Inc. and CAMOFI Master
                LDC; Incorporated by reference to the Company’s Form 8-K filed on March
                13, 2006.10.9
            Escrow
                Agreement between New Century Companies, Inc., CAMOFI Master LDC
                and
                Katten Muchin Rosenman LLP, as Escrow Agent; Incorporated by reference
                to
                the Company’s Form 8-K filed on March 13, 2006.10.10
            Security
                Agreement between New Century Companies, Inc. and its current and
                future
                subsidiaries on the one hand, and CAMOFI Master LDC on the other
                hand;
                Incorporated by reference to the Company’s Form 8-K filed on March 13,
                2006.10.11
            Subsidiary
                Guarantee provided by all current and future subsidiaries of New
                Century
                Companies, Inc. to CAMOFI Master LDC; Incorporated by reference to
                the
                Company’s Form 8-K filed on March 13, 2006.10.12
            Lock-up
                Agreement with certain shareholders of New Century Companies, Inc.;
                Incorporated by reference to the Company’s Form 8-K filed on March 13,
                2006.10.13
            Allonge
                to Series A Convertible Note dated August 8, 2006; Incorporated by
                reference to the Company’s Form SB-2 Registration Statement filed on
                January 23, 2007.10.14
            Amendment
                to Registration Rights Agreement dated August 8, 2006; Incorporated
                by
                reference to the Company’s Form SB-2 Registration Statement filed on
                January 23, 2007.10.15
            Amended
                and Restated Registration Rights Agreement dated December 19, 2006;Incorporated
                by reference to the Company’s Form 8-K filed on December 26,
                2006.10.16
            Common
                Stock Purchase Warrants issued to Motivated Minds, LLC dated December
                19,
                2006; Incorporated by reference to the Company’s Form 8-K filed on
                December 26, 2006.21.1
            Subsidiaries
                of the Company.31.1
            Certification
                required by Rule 13a-14(a) or rule 15d-14(d) and under Section 302
                of the
                Sarbanes-Oxley act of 2002.32.1
            Certification
                required by Rule 13a-14(a) or rule 15d-14(d) and under Section 906
                of the
                Sarbanes-Oxley act of 2002.


24


**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      following table presents fees for professional services rendered by Squar,
      Milner, Peterson, Miranda & Williamson LLP ("Squar Milner") for the annual
      audit of our consolidated financial statements as of and for the years ended
      December 31, 2006, and 2005 and fees billed for other services rendered by
      Squar
      Milner during such years:





For
      the
      Years Ended December 31,




2006
            
            2005Audit
                Fees (1)
            
            $
            107,000
            
            $
            87,500Audit
                Related Fees
            
            
            -
            
            
            -Tax
                Fees
            
            $
            8,400
            
            $
            7,500All
                Other Fees (2)
            
            $
            20,100
            
            $
            3,900$
            135,500
            
            $
            98,900


(1)
      Such
      billings include the quarterly reviews.


(2)
      Such
      billings were in connection with review of 2006 SB-2 filings and SEC Comment
      letters.




**POLICY
      ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
      OF
      INDEPENDENT AUDITOR**





The
      Company does not have an audit committee. Therefore, the Board of Directors
      is
      responsible for pre-approving all audits and permitted non-audit services to
      be
      performed for us by our independent auditor.


25





**SIGNATURES**





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




*Date:
              March
              30, 2007*
            *NEW
                CENTURY COMPANIES, INC.*By:
            */s/
                DAVID DUQUETTE**Name:
                David Duquette*
              *Title:
                Chairman, President and Director*




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


*Date: March 30, 2007*
              By:
              */s/
                  DAVID DUQUETTE**Name:
                  David Duquette*
                *Title:
                  Chairman, President and Director*
 *Date: March 30, 2007*
              By:
              */s/
                  JOSEF CZIKMANTORI**Name:
                  Josef Czikmantori*
                *Title:
                  Secretary and Director*


26




**NEW
        CENTURY COMPANIES, INC.**
 **AND
        SUBSIDIARY**
 
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2006**
 
 
 
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 Report
                    of Independent Registered Public Accounting Firm
                F-1Consolidated
                    Balance Sheet
                F-2Consolidated
                    Statements of Operations
                F-3Consolidated
                    Statements of Stockholders’ Equity (Deficit)
                F-4Consolidated
                    Statements of Cash Flows
                F-5Notes
                    to Consolidated Financial Statements
                F-6
  
  **REPORT
          OF INDEPENDENT REGISTERED PUBLIC AC****COUNTING
          FIRM**
 
 To
          the
          Board of Directors and Stockholders of
 New
          Century Companies, Inc. and Subsidiary
 
 We
          have
          audited the accompanying consolidated balance sheet of New Century Companies,
          Inc. and Subsidiary (the "Company") as of December 31, 2006, and the related
          consolidated statements of operations, stockholders’ equity (deficit) and cash
          flows for each of the two years in the period ended December 31, 2006.
          These
          consolidated financial statements are the responsibility of the Company's
          management. Our responsibility is to express an opinion on these consolidated
          financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          consolidated financial statements are free of material misstatement. The
          Company
          was not required to have, nor were we engaged to perform, an audit of its
          internal control over financial reporting. Our audit includes consideration
          of
          internal control over financial reporting as a basis for designing audit
          procedures that are appropriate in the circumstances, but not for the purpose
          of
          expressing an opinion on the effectiveness of the Company’s internal control
          over financial reporting. Accordingly, we express no such opinion. 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 consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of New Century Companies,
          Inc.
          and Subsidiary as of December 31, 2006, and the results of their operations
          and
          their cash flows for each of the two years in the period ended December
          31, 2006
          in conformity with accounting principles generally accepted in the United
          States
          of America.
 
 The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern. As discussed in Note 1 to
          the
          consolidated financial statements, the Company has an accumulated deficit
          of
          approximately $7,808,000 and a history of losses from operations. These
          factors,
          among others, raise substantial doubt about the Company’s ability to continue as
          a going concern. Management’s plans regarding these matters are also described
          in Note 1. The accompanying consolidated financial statements do not include
          any
          adjustments that might result from the outcome of this uncertainty.
  
 /s/
          SQUAR, MILNER, PETERSON,
          MIRANDA & WILLIAMSON, LLP
 
 March
          12,
          2007
 Newport
          Beach, California
  Page
              F-1
  **NEW
                  CENTURY COMPANIES, INC. AND SUBSIDIARY****CONSOLIDATED
                  BALANCE SHEET****December
                  31, 2006**
  **ASSETS****Current
                  Assets**Cash
              
              $
              53,318Restricted
                  cash
              
              
              123,898Contracts
                  receivable
              
              
              303,561Inventories,
                  net
              
              
              1,120,182Costs
                  and estimated earnings in excess of billings on uncompleted
                  contracts
              
              
              1,160,668Deferred
                  financing costs, net
              
              
              358,293Prepaid
                  expenses and other current assets
              
              
              20,205Total
                  current assets
              
              
              3,140,125**Property
                  and Equipment, net**
              
              
              285,088**Deferred
                  Financing Costs**
              
              
              418,009Total
                  assets
              
              $
              3,843,222**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Bank
                  overdraft
              
              
              18,772Accounts
                  payable and accrued expenses
              
              
              1,191,460Dividends
                  payable
              
              
              362,800Billings
                  in excess of costs and estimated earnings on uncompleted
                  contracts
              
              
              452,911Notes
                  payable
              
              
              48,000Convertible
                  notes payable, net of discounts
              
              
              332,556Total
                  current liabilities
              
              
              2,406,499**Convertible
                  Notes Payable, net of discounts**
              
              
              273,000**Commitments
                  and Contingencies****Stockholders'
                  Equity**Cumulative,
                  convertible, Series B preferred stock, $1 par value,15,000,000
                  shares authorized, no shares issued and outstanding(liquidation
                  preference of $25 per share)
              
              
              -Cumulative,
                  convertible, Series C preferred stock, $1 par value,75,000
                  shares authorized, 27,780 shares issued and outstanding(liquidation
                  preference of $933,000)
              
              
              27,780Cumulative,
                  convertible, Series D preferred stock, $25 par value,75,000
                  shares authorized, 11,640 shares issued and outstanding(liquidation
                  preference of $416,000)
              
              
              291,000Common
                  stock, $0.10 par value, 50,000,000 shares authorized;11,714,654
                  shares issued and outstanding
              
              
              1,171,466Subscriptions
                  receivable
              
              
              (462,500
              )Notes
                  receivable from stockholders
              
              
              (525,402
              )Deferred
                  consulting fees
              
              
              (333,069
              )Additional
                  paid-in capital
              
              
              8,802,564Accumulated
                  deficit
              
              
              (7,808,116
              )Total
                  stockholders' equity
              
              
              1,163,723Total
                  liabilities and equity
              
              $
              3,843,222
  See
          accompanying notes to the consolidated financial statements.
  Page
            F-2
 **NEW
                  CENTURY COMPANIES, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****For
                  the Years Ended December 31, 2006 and
                  2005**
  **2006**
              
              **2005****CONTRACT
                  REVENUES**
              
              $
              8,318,957
              
              $
              6,038,459**COST
                  OF SALES**
              
              
              6,437,761
              
              
              4,323,489**GROSS
                  PROFIT**
              
              
              1,881,196
              
              
              1,714,970**OPERATING
                  EXPENSES**Consulting
                  and other compensation
              
              
              520,346
              
              
              579,921Salaries
                  and related
              
              
              351,410
              
              
              218,249Selling,
                  general and administrative
              
              
              1,260,861
              
              
              350,787**TOTAL
                  OPERATING EXPENSES**
              
              
              2,132,617
              
              
              1,148,957**OPERATING
                  INCOME (LOSS)**
              
              
              (251,421
              )
              
              566,013**OTHER
                  INCOME (EXPENSES)**Gain
                  (loss) on forgiveness of debt
              
              
              41,595
              
              
              318,973Change
                  in fair value of derivative liability
              
              
              1,494,761
              
              
              -Interest
                  income
              
              
              27,308Interest,
                  including debt discount amortization
              
              
              (2,363,187
              )
              
              (215,827
              )**TOTAL
                  OTHER INCOME (EXPENSES)**
              
              
              (799,523
              )
              
              103,146**INCOME
                  (LOSS) BEFORE PROVISION FOR****INCOME
                  TAXES**
              
              
              (1,050,944
              )
              
              669,159**PROVISION
                  FOR INCOME TAXES**
              
              
              800
              
              
              800**NET
                  INCOME (LOSS)**
              
              $
              (1,051,744
              )
              $
              668,359**NET
                  INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS**
              
              $
              (848,669
              )
              $
              512,059**Basic
                  net income (loss) applicable to common
                  stockholders****per
                  common share**
              
              $
              (0.07
              )
              $
              0.06**Diluted
                  net income (loss) applicable to common
                  stockholders****per
                  common share**
              
              $
              (0.07
              )
              $
              0.05**Basic
                  weighted average common shares outstanding**
              
              
              11,332,289
              
              
              9,186,987**Diluted
                  weighted average common shares outstanding**
              
              
              11,332,289
              
              
              9,836,987
 See
            accompanying notes to the consolidated financial statements.
 
 Page
            F-3
 
 **NEW
                        CENTURY COMPANIES, INC. AND SUBSIDIARY****STATEMENTS
                          OF STOCKHOLDERS' EQUITY (DEFICIT)****For
                        the Years Ended December 31, 2006 and
                        2005**
 **Conversion
                      of Preferred**
                  
                  **Preferred**
                  
                  **Preferred**
                  
                  
                  
                  
                  
                  
                  
                  **Notes**
                  
                  
                  
                  
                  
                  
                  
                  **Total****Stock,
                      Series B**
                  
                  **Stock,
                      Series C**
                  
                  **Stock,
                      Series D**
                  
                  **Common
                      Stock**
                  
                  **Additional**
                  
                  **Receivable**
                  
                  
                  
                  
                  
                  
                  
                  **Stockholders'****Paid
                      In**
                  
                  **From**
                  
                  **Deferred**
                  
                  **Subscriptions**
                  
                  **(Accumulated**
                  
                  **Equity****Shares**
                  
                  **Amount**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **Capital**
                  
                  **Stockholders**
                  
                  **Compensation**
                  
                  **Receivable**
                  
                  **Deficit)**
                  
                  **(Deficit)****Balance,Janaury
                      1, 2005**
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  60,780
                  
                  $
                  60,780
                  
                  
                  23,640
                  
                  $
                  591,000
                  
                  
                  7,292,265
                  
                  $
                  729,227
                  
                  $
                  4,060,974
                  
                  $
                  (485,924
                  )
                  $
                  (8,333
                  )
                  $
                  (462,500
                  )
                  $
                  (7,471,506
                  )
                  $
                  (2,986,282
                  )Issuance
                      of common stock in connection with debt extention
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  250,000
                  
                  
                  25,000
                  
                  
                  22,500
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  47,500Isssuance
                      of common stock for consulting services
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,050,000
                  
                  
                  105,000
                  
                  
                  414,000
                  
                  
                  -
                  
                  
                  (519,000
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -Isssuance
                      of common stock as a penalty for not registering preferred
                      shares
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  300,000
                  
                  
                  30,000
                  
                  
                  60,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  90,000Issuance
                      of common stock in connection with legal settlment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  100,000
                  
                  
                  10,000
                  
                  
                  10,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  20,000Accrued
                      dividends payable
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (156,300
                  )
                  
                  (156,300
                  )Issuance
                        of common stock in connection with the conversion of preferred
                        stock
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (31,800
                  )
                  
                  (31,800
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  530,001
                  
                  
                  53,000
                  
                  
                  (21,200
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Issuance
                        of common stock in connection with the conversion of preferred
                        stock
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (12,000
                  )
                  
                  (300,000
                  )
                  
                  600,000
                  
                  
                  60,000
                  
                  
                  240,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Issuance
                      of common stock in connection with settlement of debt
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  500,000
                  
                  
                  50,000
                  
                  
                  260,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  310,000Issuance
                        of common stock in connection with settlement of accounts
                        payable
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  75,000
                  
                  
                  7,500
                  
                  
                  39,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  46,500Amortization
                      of deferred consulting fees
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  272,616
                  
                  
                  -
                  
                  
                  -
                  
                  
                  272,616Interest
                      on notes receivable from stockholders
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (19,715
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (19,715
                  )Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  668,359
                  
                  
                  668,359**Balance,
                      December 31, 2005**
                  
                  
                  -
                  
                  
                  -
                  
                  
                  28,980
                  
                  
                  28,980
                  
                  
                  11,640
                  
                  
                  291,000
                  
                  
                  10,697,266
                  
                  
                  1,069,727
                  
                  
                  5,085,274
                  
                  
                  (505,639
                  )
                  
                  (254,717
                  )
                  
                  (462,500
                  )
                  
                  (6,959,447
                  )
                  
                  (1,707,322
                  )Isssuance
                      of common stock for consulting services
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  325,000
                  
                  
                  32,500
                  
                  
                  (167,750
                  )
                  
                  
                  
                  
                  146,936
                  
                  
                  
                  
                  
                  -
                  
                  
                  11,686Issuance
                      of stock in connection with convertible debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  30,000
                  
                  
                  3,000
                  
                  
                  6,584
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9,584Beneficial
                      Conversion Features and Other Debt Discounts
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,600,416
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,600,416Issuance
                      of warrants for financing costs
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  455,200
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  455,200Issuance
                      of stock for interest expense
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  269,318
                  
                  
                  26,932
                  
                  
                  143,318
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  170,250Warrants
                      issued for Consulting
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  127,500
                  
                  
                  
                  
                  
                  (127,500
                  )
                  
                  
                  
                  
                  
                  
                  
                  -Issuance
                      of shares for extension of debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  105,000
                  
                  
                  10,500
                  
                  
                  37,800
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  48,300Issuance
                      of shares for financing costs
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  250,000
                  
                  
                  25,000
                  
                  
                  132,500
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  157,500Conversion
                      of Preferred Stock
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,200
                  )
                  $
                  (1,200
                  )
                  
                  
                  
                  
                  
                  
                  
                  20,000
                  
                  
                  2,000
                  
                  
                  (800
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Amortization
                      of deferred compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  219,012
                  
                  
                  
                  
                  
                  
                  
                  
                  219,012Issuance
                      of warrants for waiver of liquidated damages
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  300,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  300,000Stock
                      Based Compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  360,000
                  
                  
                  
                  
                  
                  (316,800
                  )
                  
                  
                  
                  
                  
                  
                  
                  43,200Cumulative
                      Preferred Dividends
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  203,075
                  
                  
                  203,075Interest
                      on Notes Receivable from stockholder
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (19,763
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (19,763
                  )Issuance
                      of warrants for financing
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  29,090
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  29,090Misc.
                      Adjustment
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  18,070
                  
                  
                  1,807
                  
                  
                  (1,807
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Reclassification
                      of warrant liability
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  695,239
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  695,239Net
                      Income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,051,744
                  )
                  
                  (1,051,744
                  )**Balance,
                      December 31, 2006**
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  27,780
                  
                  $
                  27,780
                  
                  
                  11,640
                  
                  $
                  291,000
                  
                  
                  11,714,654
                  
                  $
                  1,171,466
                  
                  $
                  8,802,564
                  
                  $
                  (525,402
                  )
                  $
                  (333,069
                  )
                  $
                  (462,500
                  )
                  $
                  (7,808,116
                  )
                  $
                  1,163,723
  See
              accompanying notes to the consolidated financial statements.


Page
              F-4


**NEW
                      CENTURY COMPANIES, INC. AND SUBSIDIARY****CONSOLIDATED
                      STATEMENTS OF CASH FLOWS****For
                      the Years Ended December 31, 2006 and
                      2005**
  **2006**
                  
                  **2005**Cash
                      flows from operating activities:Net
                      income (loss)
                  
                  $
                  (1,051,744
                  )
                  $
                  668,359Adjustments
                      to reconcile net income (loss) to net cashused
                      in operating activities:Depreciation
                      and amortization of property and equipment
                  
                  
                  146,563
                  
                  
                  194,300Gain
                      on settlement of legal dispute
                  
                  
                  -
                  
                  
                  (275,000
                  )Gain
                      on forgiveness of accounts payable
                  
                  
                  -
                  
                  
                  (102,597
                  )Gain
                      on forgiveness of notes payable
                  
                  
                  -
                  
                  
                  (216,375
                  )Gain
                      on forgiveness of debt from waiver of liquidated
                      damages
                  
                  
                  259,185
                  
                  
                  -Stock
                      issued for interest expense
                  
                  
                  170,250
                  
                  
                  -Stock
                      options grants
                  
                  
                  43,200
                  
                  
                  -Amortization
                      of debt discount
                  
                  
                  1,320,522
                  
                  
                  47,500Amortization
                      of deferred consulting fees
                  
                  
                  236,435
                  
                  
                  272,616Amortization
                      of deferred financing cost
                  
                  
                  347,988
                  
                  
                  -Bad
                      debt expense (credit)
                  
                  
                  115,158
                  
                  
                  (5,334
                  )Derivative
                      liability expense (income)
                  
                  
                  (1,494,761
                  )
                  
                  -Estimated
                      fair market value of common stock issued forconsulting
                      services and related change in fair value
                  
                  
                  (19,987
                  )
                  
                  -Estimated
                      fair market value of common stock issued forpartial
                      legal settlement
                  
                  
                  -
                  
                  
                  20,000Interest
                      income on notes receivable from stockholders
                  
                  
                  (19,763
                  )
                  
                  (19,715
                  )Estimated
                      fair market value of common stock issued forpenalty
                      on failure to register convertible preferred stock
                  
                  
                  -
                  
                  
                  90,000Other
                  
                  
                  45,985
                  
                  
                  -Changes
                      in operating assets and liabilities:Contracts
                      receivable
                  
                  
                  (151,150
                  )
                  
                  (554,368
                  )Inventories
                  
                  
                  (191,235
                  )
                  
                  51,295Costs
                      and estimated earnings in excess of billings on uncompleted
                      contracts
                  
                  
                  (742,913
                  )
                  
                  (165,923
                  )Prepaid
                      expenses and other current assets
                  
                  
                  (50,380
                  )
                  
                  -Accounts
                      payable and accrued expenses
                  
                  
                  (557,620
                  )
                  
                  169,887Billings
                      in excess of costs and estimated earnings on uncompleted
                      contracts
                  
                  
                  (48,473
                  )
                  
                  (259,002
                  )Net
                      cash used in operating activities
                  
                  
                  (1,642,740
                  )
                  
                  (84,357
                  )Cash
                      flows from financing activities:Bank
                      overdraft
                  
                  
                  (8,877
                  )
                  
                  27,649Proceeds
                      of issuance of notes payable
                  
                  
                  3,800,000
                  
                  
                  -Restricted
                      cash
                  
                  
                  (123,898
                  )
                  
                  -Payment
                      of financing costs
                  
                  
                  (422,500
                  )
                  
                  -Principal
                      payments on notes payable
                  
                  
                  (1,548,667
                  )
                  
                  -Principal
                      repayments on obligations under capital lease
                  
                  
                  -
                  
                  
                  (72,379
                  )Net
                      cash (used in) provided by financing activities
                  
                  
                  1,696,058
                  
                  
                  (44,730
                  )Net
                      increase (decrease) in cash
                  
                  
                  53,318
                  
                  
                  (129,087
                  )Cash
                      at beginning of period
                  
                  
                  -
                  
                  
                  129,087Cash
                      at end of period
                  
                  $
                  53,318
                  
                  $
                  -Supplemental
                      disclosure of non-cash investing and financing activities:Debt
                      discount on note payable extension
                  
                  $
                  10,500
                  
                  $
                  47,500BCF
                      and Debt discount on convertible notes payable
                  
                  $
                  3,843,300
                  
                  $
                  -Accrued
                      cumulative dividends on preferred stock
                  
                  $
                  84,800
                  
                  $
                  156,300Cumulative
                      preferred dividends waived
                  
                  $
                  287,875
                  
                  $
                  -Accrued
                      deffered financing cost
                  
                  $
                  60,000
                  
                  $
                  -Conversion
                      of preferred stock to common stock
                  
                  $
                  2,000
                  
                  $
                  331,800Common
                      stock issued for settlement of notes payable
                  
                  $
                  -
                  
                  $
                  310,000Common
                      stock issued for settlement of accounts payable
                  
                  $
                  -
                  
                  $
                  46,500Reclassification
                      of warrant liability to equity
                  
                  $
                  695,239
                  
                  $
                  -Common
                      stock and warrants issued for deferred financing
                      cost
                  
                  $
                  641,790
                  
                  $
                  -Equipment
                      acquired in legal settlement
                  
                  $
                  -
                  
                  $
                  275,000
 See
                accompanying notes to the consolidated financial statements.


Page
          F-5




**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





***Organization
      and Nature of Operations***





New
      Century Companies, Inc. and Subsidiary (collectively, the "Company"), a
      California corporation, was incorporated March 1996 and is located in Southern
      California. The Company is engaged in acquiring, re-manufacturing and selling
      pre-owned Computer Numerically Controlled (CNC) machine tools to manufacturing
      customers. The Company provides rebuilt, retrofit and remanufacturing services
      for numerous brands of machine tools. It also manufactures original equipment
      CNC large turning lathes and attachments under the trade name Century Turn.
      CNC
      machines use commands from onboard computers to control the movements of cutting
      tools and rotation speeds of the parts being produced.





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 trades on the Over-the-Counter Bulletin Board under the symbol
“NCNC.OB.”





***Principles
      of Consolidation***





The
      consolidated financial statements include the accounts of New Century Companies,
      Inc. and its wholly owned subsidiary, New Century Remanufacturing (collectively,
      the “Company”). All significant intercompany accounts and transactions have been
      eliminated in consolidation.





***Going
      Concern***





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern, which contemplates, among other
      things, the realization of assets and satisfaction of liabilities in the normal
      course of business. The
      Company has an accumulated deficit of approximately $7,808,000 and a history
      of
      operating losses. These factors, among others, raise substantial doubt about
      the
      Company's ability to continue as a going concern. The Company intends to fund
      operations through anticipated increased sales along with debt and equity
      financing arrangements which management believes may be insufficient to fund
      its
      capital expenditures, working capital and other cash requirements for the year
      ending December 31, 2007. Therefore, the Company will be required to seek
      additional funds to finance its long-term operations. The successful outcome
      of
      future activities cannot be determined at this
      time
      and there is no assurance that if achieved, the Company will have sufficient
      funds to execute its intended business plan or generate positive operating
      results.





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


·  The
      Company continues its aggressive program for selling inventory.


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


·  The
      Company is seeking investment capital through the public and private markets.





The
      consolidated financial statements do not include any adjustments related to
      recoverability and




Page
          F-6
 
 **NEW
          CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2006**


**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Going
      Concern*** (continued)





classification
      of assets carrying amounts or the amount and classification of liabilities
      that
      might result
      should the Company be unable to continue as a going concern.


During
      2006, the Company entered into an agreement with one of its creditors,
      whereby the creditor agreed to waive liquidated damages totaling $582,500 in
      exchange for 1.5 million warrants valued at $300,000 (using
      the Black Scholes option pricing model) .
      In
      addition, during 2006 the Company settled with several vendors and was able
      to
      obtain reductions (generally 50%) in the amounts due to those specific vendors.
      This transaction resulted in a credit to earnings of approximately $42,000.
      As a
      result, the consolidated statement of operations includes a net gain on
      forgiveness of debt of approximately $42,000 and $319,000 for 2006 and 2005,
      respectively.





***Concentrations
      of Credit Risks***





Cash
      is
      maintained at various financial institutions. The Federal Deposit Insurance
      Corporation (“FDIC”) insures accounts at each financial institution for up to
      $100,000. At times, cash may be in excess of the FDIC insurance limit of
      $100,000. The Company had approximately $93,000 uninsured bank balances at
      December 31, 2006, and none at December 31, 2005.





The
      Company sells products to customers throughout the United States. The Company’s
      ability to collect receivables is affected by economic fluctuations in the
      geographic areas served by the Company. Although the Company does not obtain
      collateral with which to secure its contract receivable, management periodically
      reviews contracts receivable and assesses the financial strength of its
      customers and, as a consequence, believes that the receivable credit risk
      exposure could, at times, be material to the financial statements.





During
      the year ended December 31, 2006, sales to four customers approximated 53%
      of
      net sales. No other single customer net sales were more than 10% for the year
      ended December 31, 2006. Management reviews the collectibility of contracts
      receivables periodically and believes that the allowance for doubtful
      accounts at December 31, 2006 of approximately $115,000 is
      adequate.




***Risks
      and Uncertainties***





The
      Company operates in an industry that is subject to intense competition. The
      Company's operations are subject to significant risks and uncertainties
      including financial, operational, technological and other risks associated
      with
      operating a business including the potential risk of business failure.




Page
          F-7




**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**





**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Use
      of Estimates in the Preparation of Financial Statements***





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America (“GAAP”) requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements, and the reported amounts of revenues and expenses
      during the reporting periods. Significant estimates made by management are,
      among others, deferred tax asset valuation allowances, realization of
      inventories, collectibility of contracts receivable and the estimation of costs
      for long-term construction contracts. Actual results could materially differ
      from those estimates.





***Cash
      and Cash Equivalents***





The
      Company considers all highly liquid fixed income investments with maturities
      of
      three months or less at the time of acquisition, to be cash equivalents. The
      Company had no cash equivalents at December 31, 2006.





***Inventories***





Inventories
      are stated at the lower of cost or net realizable value. Cost is determined
      under the first-in, first-out method. Inventories represent cost of work in
      process on units not yet under contract. Cost includes all direct material
      and
      labor, machinery, subcontractors and allocations of indirect overhead. Net
      realizable value is based on management's forecast for sales of the Company's
      products or services in the ensuing years. The industry in which the Company
      operates is characterized by technological advancement and change. Should demand
      for the Company's products prove to be significantly less than anticipated,
      the
      ultimate realizable value of the Company's inventories could be substantially
      less than the amount shown in the accompanying consolidated balance sheet.
      At
      December 31, 2006, the Company had inventory reserves approximating
      $286,000.





***Property
      and Equipment***





Property
      and equipment are recorded at cost and are depreciated using the straight-line
      method over the estimated useful lives of the related assets ranging from three
      to five years. Equipment under capital lease obligations are depreciated over
      the shorter of the estimated useful life or the term of the lease. Maintenance
      and repairs are charged to expense as incurred. Significant renewals and
      betterments are capitalized. At the time of retirement or other disposition
      of
      property and equipment, the cost and related accumulated depreciation are
      removed from the accounts and any resulting gain or loss is reflected in the
      consolidated statement of operations. For the years ended December 31, 2006
      and
      2005, the Company incurred depreciation expense of approximately $147,000
      and $194,000, respectively.





Page
          F-8




**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Long-Lived
      Assets***





The
      Company accounts for long-lived asset impairments under Statement of Financial
      Accounting Standards (“SFAS”) No. 144, *“Accounting
      for the Impairment or Disposal of Long-Lived Assets”* (“SFAS
      No. 144”). SFAS No. 144 requires a three-step approach for recognizing and
      measuring the impairment of assets to be held and used. The Company recognizes
      impairment losses on long-lived assets used in operations when indicators of
      impairment are present and the undiscounted cash flows estimated to be generated
      by those assets are less than the assets’ carrying amounts. The impairment loss
      is measured by comparing the fair value of the asset to its carrying amount.
      Fair value is estimated based on discounted future cash flows. Assets to be
      sold
      must be stated at the lower of the assets’ carrying amount or fair value and
      depreciation is no longer recognized. The Company believes that no impairment
      of
      property and equipment exists at December 31, 2006.





***Revenue
      Recognition***




The
      Company's revenues consist of contracts with vendors. The Company uses the
      percentage-of-completion method of accounting to account for long-term contracts
      and, therefore, takes into account the cost, estimated earnings and revenue
      to
      date on fixed-fee contracts not yet completed. The percentage-of-completion
      method is used because management considers total cost to be the best available
      measure of progress on the contracts. Because of inherent uncertainties in
      estimating costs, it is at least reasonably possible that the estimates used
      will change within the near term.




Staff

      Accounting Bulletin ("SAB") No. 104, "Revenue Recognition" outlines the basic
      criteria that must be met to recognize revenue and provides guidance for
      presentation of revenue and for disclosure related to revenue recognition
      policies in financial statements filed with the SEC. Management believes that
      the Company's revenue recognition policy conforms to SAB No. 104. The Company
      recognizes revenue on contracts pursuant to SOP 81-1.




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
      contracts may extend over a period of time, changes in job performance, changes
      in job conditions and revisions of estimates of cost and earnings during the
      course of the work are reflected in the accounting period in which the facts
      that require the revision become known. At the time a loss on a contract becomes
      known, the entire amount of the estimated ultimate loss is recognized in the
      consolidated financial statements.




Contracts
      that are substantially complete are considered closed for consolidated financial
      statement purposes. Costs incurred and revenue earned on contracts in progress
      in excess of billings (under billings) are classified as a current asset.
      Amounts billed in excess of costs and revenue earned (over billings) are
      classified as a current liability.




Page
          F-9


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





The
      Company accounts for shipping and handling fees and costs in accordance with
      Emerging Issues Task Force ("EITF") Issue No. 00-10 "Accounting for Shipping
      and
      Handling Fees and Costs." Shipping and handling fees and costs incurred by
      the
      Company are immaterial to the operations of the Company and are included in
      cost
      of sales.




In
      accordance with Statements of Financial Accounting Standards ("SFAS") No. 48,
      "Revenue Recognition when Right of Return Exists," revenue is recorded net
      of an
      estimate of markdowns, price concessions and warranty costs. Such reserve is
      based on management's evaluation of historical experience, current industry
      trends and estimated costs.





***Warranty***





The
      Company provides a warranty on certain products sold. Estimated future warranty
      obligations related to certain products and services are provided by charges
      to
      operations in the period in which the related revenue is recognized. At December
      31, 2006 and 2005, the warranty obligation was immaterial to the accompanying
      consolidated balance sheets.





***Advertising***





The
      Company expenses the cost of advertising when incurred as selling expense in
      the
      accompanying consolidated statements of operations. Advertising expenses were
      approximately $38,000 and $0 for the years ended December 31, 2006 and 2005,
      respectively.





***Research
      and Development Costs***





Research
      and development costs are expensed as incurred.





***Income
      Taxes***





Income
      taxes are accounted for in accordance with Statement of Financial Accounting
      Standards No. 109, *Accounting
      for Income Taxes* (“SFAS
      109”). This statement requires the recognition of deferred tax assets and
      liabilities to reflect the future tax consequences of events that have been
      recognized in the Company’s financial statements or tax returns. Measurement of
      the deferred items is based on enacted tax laws. In the event the future
      consequences of differences between financial reporting bases and tax bases
      of
      the Company’s assets and liabilities result in a deferred tax asset,
      SFAS 109 requires an evaluation of the probability of being able to realize
      the future benefits indicated by such assets. A valuation allowance related
      to a
      deferred tax asset is recorded when it is more likely than not that some portion
      or all of the deferred tax asset will not be realized. A full valuation
      allowance for deferred tax assets has been provided at December 31, 2006.
      The valuation allowance approximate $4,527,000 at December 31, 2006 (See Note
      7).




Page
          F-10
 
 **NEW
          CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2006**




**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Basic
      and Diluted Income (Loss) Per Common Share***





Under
      SFAS 128, *“Earnings
      Per Share,”* basic
      earnings per common share is computed by dividing income (loss) available to
      common stockholders by the weighted-average number of common shares assumed
      to
      be outstanding during the period of computation. Diluted earnings per share
      is
      computed similar to basic earnings per share except that the denominator is
      increased to include the number of additional common shares that would have
      been
      outstanding if the potential common shares had been issued and if the
      additional common shares were dilutive. Under the treasury stock method, there
      were 2,455,224 and 650,000 additional potential common shares at December 31,
      2006 and 2005, respectively. Under the if-converted method, there were 6,072,358
      additional potential common shares at December 31, 2006 and none at December
      31,
      2005.




Basic
      net
      earning (loss) per share is computed by dividing net income (loss) by the
      weighted average number of common shares outstanding for the period. Diluted
      net
      income (loss) per share is computed by dividing net loss by the weighted average
      number of common shares and dilutive common stock equivalents outstanding for
      each respective year. Common stock equivalents, representing convertible
      Preferred Stock, convertible debt, options and warrants totaling approximately
      6,026,490 and 6,403,728 shares at December 31, 2006 are not included in the
      diluted loss per share as they would be anti-dilutive. Accordingly, diluted
      and
      basic loss per share are the same for 2006.




At
      December 31, 2005 common stock equivalents which are not included in the diluted
      loss per share, representing convertible Preferred Stock, convertible debt,
      options and warrants totaled 1,065,000 and 168,500.




***Segments
      of Business***





SFAS
      131, *“Disclosures
      about Segments of an Enterprise and Related Information,”* changes
      the way public companies report information about segments of their business in their quarterly
      reports issued to stockholders. It also requires entity-wide disclosures about
      the products and services an entity provides, the material countries in which
      it
      holds assets and reports revenues and its major customers. The Company currently
      operates in one segment ***.***





Page
          F-11





**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Stock
      Based Compensation***




Effective
      January 1, 2006, the Company adopted the provisions of SFAS No. 123-R,
      "Share-Based Payment," ("SFAS No. 123-R"). SFAS No. 123-R requires employee
      stock options and rights to purchase shares under stock participation plans
      to
      be accounted for under the fair value method and requires the use of an option
      pricing model for estimating fair value. Accordingly, share-based compensation
      is measured at the grant date, based on the fair value of the award. The Company
      previously accounted for awards granted under its equity incentive plan under
      the intrinsic value method prescribed by Accounting Principles Board Opinion
      No.
      25, "Accounting for Stock Issued to Employees," and related interpretations,
      and
      provided the required pro forma disclosures prescribed by SFAS No. 123,
      "Accounting for Stock-Based Compensation," as amended. The exercise price of
      options is generally equal to the market price of the Company's common stock
      (defined as the closing price as quoted on the Over-the-Counter Bulletin Board
      administered by Nasdaq) on the date of grant. Accordingly, $43,200 share-based
      compensation was recognized in the financial statements for the year ended
      December 31, 2006.




Under
      the
      modified prospective method of adoption for SFAS No. 123-R, the compensation
      cost recognized by the Company beginning January 1, 2006 includes compensation
      cost for all equity incentive awards granted subsequent to January 1, 2006,
      based on the grant-date fair value estimated in accordance with the provisions
      of SFAS No. 123-R. The Company had no equity incentive awards granted prior
      to
      January 1, 2006 that were not yet vested.





From
      time
      to time, the Company's Board of Directors grants common share purchase options
      or warrants to selected directors, officers, employees, consultants and advisors
      in payment of goods or services provided by such persons on a stand-alone basis
      outside of any of the Company's formal stock plans. The terms of these grants
      are individually negotiated and generally expire within five years from the
      grant date.





Under
      the
      terms of the Company's 2000 Stock Option Plan, options to purchase an aggregate
      of 5,000,000 shares of common stock may be issued to officers, key employees
      and
      consultants of the Company. The exercise price of any option generally may
      not
      be less than the fair market value of the shares on the date of grant. The
      term
      of each option generally may not be more than five years.





On
      November 13, 2006, the Company granted 2,000,000 options to keys employees.
      At
      December 31, 2006, the Company had 1,750,000 options available for future
      issuance under their equity compensation plans.





The
      effects of share-based compensation resulting from the application of SFAS
      No.
      123-R to options granted outside of the Company's Stock Option Plan resulted
      in
      approximately $43,000 expense for the year ended December 31, 2006.
      Share-based compensation recognized as a result of the adoption of SFAS No.
      123-R as well as pro forma disclosures according to the original provisions
      of
      SFAS No.





Page
          F-12


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)




***Stock
      Based Compensation*** (continued)





123
      for
      periods prior to the adoption of SFAS No. 123-R use the Black Scholes option
      pricing model for estimating fair value of options granted.




In
      accordance with SFAS No. 123-R, the Company’s policy is to adjust share-based
      compensation on a quarterly basis for changes to the estimate of expected award
      forfeitures based on actual forfeiture experience. The effect of adjusting
      the
      forfeiture rate for all expense amortization after December 31, 2006 is
      recognized in the period the forfeiture estimate is changed.




At
      December 31, 2006, the Company estimated (using the Black Scholes pricing model)
      the fair value of options granted and no variance has been found. Therefore,
      the
      effect of forfeiture adjustments at the period ended December 31, 2006 was
      not
      applicable.




Options
      outstanding that have vested and are expected to vest as of December 31, 2006
      are as follows:




Number
                  of
                Shares
              
              Weighted
                  Average
                  Exercise
                Price
              
              Weighted
                  AverageRemaining
                Contractual
                Term
                  in Years
              
              Aggregate
                Intrinsic
                Value
                  (1)Vested
              
              
              1,250,000
              
              $
              0.32
              
              
              1.70
              
              $
              137,500Expected
                  to vest
              
              
              2,000,000
              
              $
              0.20
              
              
              4.87
              
              $
              --Total
              
              
              3,250,000
              
              
              
              
              
              
              
              $
              137,500


(1)
            These
                amounts represent the difference between the exercise price and $0.21,
                the
                closing market price of the Company's common stock on December 31,
                2006 as
                quoted on the Over-the-Counter Bulletin Board under the symbol "NCNC.OB"
                for all in-the-money options
                outstanding.





Page
          F-13


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006** **1.
          ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)




***Stock
      Based Compensation*** (continued)




The
      Company’s policy for options outstanding that are expected to vest are net of
      estimated future forfeitures in accordance with the provisions of SFAS No.
      123-R, which are estimated when compensation costs are recognized. Additional
      information with respect to stock option activity is as follows:




Outstanding
                  OptionsShares
                Available
                for
                  Grant
              
              NumberofShares
              
              Weighted
                Average
                Exercise
              
              IntrinsicValue
                  (1)December
                  31, 2005
              
              
              3,586,500
              
              
              1,413,500
              
              $
              0.40
              
              $
              269,000Grants
              
              
              2,000,000
              
              
              2,000,000
              
              $
              0.20Exercises
              
              
              --
              
              
              --
              
              
              --Cancellations
              
              
              163,500
              
              
              163,500
              
              $
              0.90December
                  31, 2006
              
              
              1,750,000
              
              
              3,250,000
              
              $
              0.25
              
              $
              --Options
                  exerciseable at:December
                  31, 2005
              
              
              
              
              
              1,413,500
              
              $
              0.40December
                  31, 2006
              
              
              
              
              
              1,250,000
              
              $
              0.32




(1)
      Represents the added value as difference between the exercise price and the
      closing market price of the Company's common stock on the end of the reporting
      period (as of December 31, 2005 and December 31, 2006 the market price of the
      Company's common stock was $0.62 and $0.21 respectively).





The
      Company follows SFAS No. 123 (R) (as interpreted by EITF Issue No. 96-18,
      "Accounting for Equity Instruments That Are Issued To Other Than Employees
      for
      Acquiring, or in Conjunction with Selling, Goods or Services") to account for
      transactions involving services provided by third parties where the Company
      issues equity instruments as part of the total consideration. Pursuant to
      paragraph 7 of SFAS No. 123 (R), the Company accounts for such transactions
      using the fair value of the consideration received (i.e. the value of the goods
      or services) or the fair value of the equity instruments issued, whichever
      is
      more reliably measurable. The Company applies EITF Issue No. 96-18, in
      transactions, when the value of the goods and/or services are not readily
      determinable and (1) the fair value of the equity instruments is more reliably
      measurable and (2) the counterparty receives equity instruments in full or
      partial settlement of the transactions, using the following
      methodology:




a)
      For
      transactions where goods have already been delivered or services rendered,
      the
      equity instruments are issued on or about the date the performance is complete
      (and valued on the date of issuance).




Page
          F-14


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**1.
      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)




b)
      For
      transactions where the instruments are issued on a fully vested, non-forfeitable
      basis, the equity instruments are valued on or about the date of the
      contract.




c)
      For
      any transactions not meeting the criteria in (a) or (b) above, the Company
      re-measures the consideration at each reporting date based on its then current
      stock value.




***Deferred
      Financing Costs***




Direct
      costs of securing debt financing are capitalized and amortized over the term
      of
      the related debt using the straight-line method. When a loan is paid in full,
      any unamortized financing costs are removed from the related accounts and
      charged to operations. During the period ended December 31, 2006, the Company
      amortized approximately $348,000 to interest expense.




***Stock
      Purchase Warrants Issued With Notes Payable***




The
      Company granted warrants in connection with the issuance of certain notes
      payable. Under Accounting Principles Board Opinion No. 14, "Accounting for
      Convertible Debt and Debt Issued With Stock Purchase Warrants," the relative
      estimated fair value of such warrants represents a discount from the face amount
      of the notes payable. Such discounts are amortized to interest expense over
      the
      term of the notes.




***Beneficial
      Conversion Feature Of Convertible Notes Payable***




The
      convertible feature of certain notes payable provides for a rate of conversion
      that is below market value. Such feature is normally characterized as a
      "Beneficial Conversion Feature" ("BCF"). Pursuant to EITF Issue No. 98-5,
      "Accounting for Convertible Securities with Beneficial Conversion Features
      or
      Contingently Adjustable Conversion Ratio" and EITF No. 00-27, "Application
      of
      EITF Issue No. 98-5 To Certain Convertible Instruments," the estimated fair
      value of the BCF is recorded in the consolidated financial statements as a
      discount from the face amount of the notes. Such discounts are amortized to
      interest expense over the term of the notes.




***Classification
      Of Warrant Obligation***





In
      connection with the issuance of the 12% Senior Secured Convertible Notes (See
      Note 3), the Company has an obligation to file registration statements covering
      the Registrable Securities, as defined in the Registration Rights Agreement
      Amended. The obligation to file the registration statement meets the criteria
      of
      an embedded derivative to be bifurcated pursuant to SFAS No. 133, "Accounting
      for Derivative Instruments and Hedging Activities", as amended. Under this
      transaction, the Company is obligated to register for resale the common shares
      underlying the warrants, and as a result, the embedded derivative associated
      with this warrant obligation does not meet the scope exception of paragraph
      11(a) of SFAS No. 133.




Page
          F-15


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Classification
      Of Warrant Obligation*** (continued)





On
      December 19, 2006, the Company entered into an amended agreement with the
      warrant holder, CAMOFI Master LDC, where by the warrant holder agreed to waive
      all liquidated damages incurred as a result of the Company’s inability to file a
      registration statement to register the shares underlying the warrants. In
      addition, a limit was placed on the amount of liquidated damages to be incurred
      in the event the Company fails to have an effective registration statement
      within the time period required by the amended agreement. The liquidated damages
      would be limited to 10% of the outstanding balance of the note. As a result,
      the
      warrants meet all the criteria outlined in EITF 00-19 to be classified as
      equity. Accordingly, the warrants were reclassified to equity at December 19,
      2006.





***Fair
      Value of Financial Instruments***





SFAS
      107, *"Disclosures
      About Fair Value of Financial Instruments,"* requires
      disclosure of fair value information about financial instruments when it is
      practicable to estimate that value. The carrying amount of the Company's cash
      (bank overdraft), contracts receivable, accounts payable


and
      accrued expenses, and notes payable approximates their estimated fair values
      because related interest rates offered to the Company approximate current
      offered rates. The fair value of the notes receivable from stockholders are
      not
      determinable as these transactions are with related parties.





***Significant
      Recent Accounting Pronouncements***





In
      June
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” This
      interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with SFAS No.
      109,”Accounting for Income Taxes.” FIN No. 48 prescribes a more-likely-than-not
      recognition threshold and a measurement attribute for the financial statement
      recognition and measurement of tax positions taken (or expected to be taken)
      in
      an income tax return. It also provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. The requirement to assess the need for a valuation
      allowance on net deferred tax assets is not affected by FIN No. 48. This
      pronouncement is effective for fiscal years beginning after December 31, 2006.
      Management is in the process of evaluating this guidance, and therefore has
      not
      yet determined the impact (if any) that FIN No.48 will have on the Company’s
      financial position or results of operation upon adoption.





In
      September 2006, the FASB issued SFAS No.157, “Fair Value Measurements,” which
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles (GAAP), and expands disclosures about
      fair value measurements. SFAS No. 157 simplifies and codifies related guidance
      within GAAP, but does not require any new fair value measurements. The guidance
      in SFAS No. 157 applies to derivatives and other financial instruments measured
      at estimated fair value under SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities” and related pronouncements. SFAS No. 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods




Page
          F-16


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**ORGANIZATION
      AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Significant
      Recent Accounting Pronouncements***





within
      those fiscal years. Management does not expect the adoption of SFAS No. 157
      to
      have a significant effect on the Company’s financial position or results of
      operation.





On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115.” This standard permits an entity to measure many financial
      instruments and certain other items at estimated fair value. Most of the
      provisions of SFAS No. 159 are elective; however, the amendment to SFAS No.
      115
      (“Accounting for Certain Investments in Debt and Equity Securities”) applies to
      all entities that own trading and available-for-sale securities. The fair value
      option created by SFAS No. 159 permits an entity to measure eligible items
      at
      fair value as of specified election dates. Among others, eligible items exclude
      (1) financial instruments classified (partially or in total) as permanent or
      temporary stockholders’ equity (such as a convertible debt security with a
      non-contingent beneficial conversion feature) and (2) investments in
      subsidiaries and interests in variable interest entities that must be
      consolidated. A for-profit business entity will be required to report unrealized
      gains and losses on items for which the fair value option has been elected
      in
      its statements of operations at each subsequent reporting date. The fair value
      option (a) may generally be applied instrument by instrument, (b) is irrevocable
      unless a new election date occurs, and (c) must be applied to the entire
      instrument and not to only a portion of the instrument. SFAS No. 159 is
      effective as of the beginning of the first fiscal year that begins after
      November 15, 2007. Early adoption is permitted as of the beginning of the
      previous fiscal year provided that the entity (i) makes that choice in the
      first
      120 days of that year, (ii) has not yet issued financial statements for any
      interim period of such year, and (iii) elects to apply the provisions of SFAS
      No. 157 (“Fair Value Measurements”). The adoption of SFAS No. 159 is not
      expected to have a significant impact on future financial
      statements.





**2.
      CONTRACTS IN PROGRESS**





Contracts
      in progress at December 31, 2006, which include completed contracts not
      completely billed, approximate:





Cumulative
                costs to date
            
            $
            6,474,000Cumulative
                gross profit to date
            
            
            5,568,000Cumulative
                revenue earned
            
            
            12,042,000Less
                progress billings to date
            
            
            (11,334,000
            )Net
                under billings
            
            $
            708,000





Page
          F-17




**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


2.
      CONTRACTS IN PROGRESS (continued)





The
      following approximate amounts are included in the accompanying consolidated
      balance sheet under these captions as of December 31, 2006:





Costs
                and estimated earnings in excess of billings on
              uncompleted
                contracts
            
            $
            1,161,000Billings
                in excess of costs and estimated earnings on
              uncompleted
                contracts
            
            
            (453,000
            )Net
                under billings
            
            $
            708,000





**3.
      PROPERTY AND EQUIPMENT**





Property
      and equipment approximate the following at December 31, 2006:




Machinery
                and equipment
            
            $
            905,000Computer
                equipment
            
            
            20,000Furniture
                and fixture
            
            
            4,000Leasehold
                improvements
            
            
            123,0001,052,000Less
                accumulated depreciation and amortization
            
            
            (767,000
            )$
            285,000





**4.
      RELATED PARTY TRANSACTIONS**





As
      of
      December 31, 2006, the Company had loans made prior to the enactment of the
      Sarbanes-Oxley Act to two stockholders approximating $525,500, including
      subsequent accrued interest. The loans accrue interest at 6% and are due on
      demand. The Company has included the notes receivable from stockholders in
      stockholders’ equity (deficit) as such amounts have not been repaid during 2006
      or 2005. For each of the years ended December 31, 2006 and 2005, total interest
      income from notes receivable from stockholders approximated $20,000.




Page
          F-18


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**5.
      NOTES PAYABLE**





On
      March
      7, 2006, the Company paid one of its creditors $900,000 in cash and 250,000
      shares of restricted common stock to settle $750,000 of principal on two
      outstanding defaulted notes payable and $291,050 of related accrued interest.
      The Company recorded the stock at fair value (estimated based on the trading
      price of the Company's stock on the date of issuance) totaling $157,500. The
      value of the stock issued and the cash paid exceeded the value of the amount
      of
      the outstanding debt and accrued interest by approximately $17,000. Such amount
      was recorded as a loss on debt extinguishment in the accompanying consolidated
      statement of operations.





During,
      2006, the Company settled an outstanding note payable with one of its creditors
      totaling approximately $80,000 for $40,000 in cash and recognized approximately
      $40,000 in gain on forgiveness of debt.





During
      the year ended December 31, 2001, the Company entered into a note payable with
      a
      third party for $215,000. The note accrued interest at a fixed rate of 15%
      per
      annum and matured in March 2002. The note was secured by certain assets of
      the
      Company, as defined, and was in default at December 31, 2004. During 2005,
      the
      Company and the note holder executed a mutual agreement to fully settle the
      debt
      whereby by the Company agreed to make fifteen monthly installments of $12,000
      (totaling $180,000) beginning January 2006 and to issue 100,000 shares of
      restricted common stock valued at $62,000 (estimated based on the market price
      of the stock on the date of the agreement) to the holder. Accrued interest
      on
      the note totaled approximately $116,000 on the date of the transaction. As
      a
      result of the effective reduction in principal balance of $35,000, the
      forgiveness of approximately $116,000 of accrued interest and the issuance
      of
      restricted common stock valued at $62,000, the Company recorded a gain on
      forgiveness of notes payable totaling approximately $89,000 for the year ended
      December 31, 2005. During the year ended December 31, 2006, the Company made
      cash payments of $132,000 to reduce the principal balance on the secured note
      payable. As of December 31 2006, the balance of the note is
      $48,000.





**6.
      CONVERTIBLE DEBT**




On
      February 15, 2006 the Company entered into a convertible note payable agreement
      ("Note A") with Motivated Minds, LLC (the "Holder") in the total amount of
      $300,000. The principal balance, together with all accrued interest at the
      rate
      of 24% per annum for the first 30 days, and 27% for the following 60 days,
      was
      to become due on the earlier of a) May 16, 2006, or b) the date which the
      Company obtains additional financing. Note A is convertible into shares of
      the
      Company's common stock at a fixed price of $0.66 at any time at the Holder's
      option. In connection with Note A, the Company issued 30,000 shares of its
      common stock and 454,545 warrants with a fixed exercise price of $0.63 to the
      Holder.





Page
          F-19


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**6.
      CONVERTIBLE DEBT** (continued)





The
      warrants vested and became fully exercisable on the issuance date. In accordance
      with EITF Issue No. 98-5 and Accounting Principles Board Opinion ("APB") No.
      14,
      the Company allocated the $300,000 debt proceeds between the relative fair
      values of the warrants, the common shares issued and the fair value of the
      beneficial conversion feature ("BCF"). Pursuant to EITF Issue Nos. 98-5 and
      00-27, the conversion feature of Note A provides for a rate of conversion that
      is below market value. The resulting BCF and other debt discount on Note A
      totaled $300,000 and is being amortized on a straight-line basis to interest
      expense over the life of the loan. During 2006, amortization of the discount
      resulted in expense of $300,000, which is included in interest expense in the
      accompanying condensed consolidated statement of operations for the year ended
      December 31, 2006.





Additionally,
      due to the financing with CAMOFI (see below), Note A became due on February
      28,
      2006 and the Company issued 30,000 shares of common stock to the Holder to
      extend the maturity date of Note A to May 16, 2006. Such shares were valued
      at
      approximately $18,900 (estimated to be the fair value based on the trading
      price
      on the issuance date). Accordingly, the Company recorded $18,900 in debt issue
      discount and additional paid-in capital and is amortizing the debt discount
      over
      the remaining life of Note A. The entire amount was amortized during
      2006.





In
      connection with Note A, the Company issued 45,454 warrants and paid $30,000
      in
      cash to third parties as financing costs. The warrants were valued, using a
      Black Scholes option pricing model, at $29,090. Accordingly, the Company
      recorded deferred financing costs of $59,090 and additional paid-in capital
      of
      $29,090. The entire amount was amortized to interest expense in 2006, which
      is
      included in in the accompanying condensed consolidated statement of
      operations.





On
      August
      8, 2006, the Holder agreed to extend the maturity date of $150,000 of the note
      balance to August 16, 2006 and the remaining $150,000 until October 16, 2006.
      As
      consideration for the extension, the Company issued 45,000 shares of restricted
      common stock to the Holder. The shares were valued at $23,400 (based on the
      price of the Company’s stock on the date of issuance) which was recorded as
      additional debt discount and amortized over the remaining life of the note.
      The
      amount was fully amortized during 2006. On August 16, 2006 the Company repaid
      $150,000 of principal and all accrued interest to the Holder. The due date
      on
      the remaining $150,000 principal was extended to December 16, 2006 and an
      additional 30,000 restricted common stock valued at $6,000 (based on the stock
      price on the date of grant) were granted to the Holder, which was also recorded
      as additional debt discount and was fully amortized to interest expense during
      the year ended December 31, 2006. On December 7, 2006, $50,000 of principal
      was
      repaid and the due date on the remaining $100,000 balance on Note was extended
      until January 31, 2007. As
      of
      December 31, 2006, the balance of the note was approximately $105,000 and the
      note was paid in full in January 2007.




In
      connection with the Note A, the Company entered into a Registration Rights
      Agreement dated February 16, 2006, pursuant to which the Company granted "piggy
      back" registration rights to the Holder in connection with the shares issuable
      upon conversion of the Note and issuable upon exercise of the
      warrants.




Page
          F-20




**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006** 
  **6.
          CONVERTIBLE DEBT** (continued)


On
      February 28, 2006, the Company entered into a Securities Purchase Agreement
      (“Note B”) with CAMOFI Master, LDC (“CAMOFI”), whereby CAMOFI agreed to
      purchase, up to $5,000,000 aggregate principal amount of 12% Senior Secured
      Convertible Notes, due February 28, 2009 (up to $3,500,000 to be purchased
      at
      the closing and up to an additional $1,500,000 to be purchased pursuant to
      an
      Additional Investment Right), secured by a first priority lien on all assets
      of
      the Company and its current and future subsidiaries (including a pledge of
      the
      shares of the Company's current and future Subsidiaries). Note B is convertible
      into 5,555,556 shares of the Company's common stock at a fixed price of $0.63
      at
      any time at CAMOFI’s option. As of December 31, 2006, the Company had not
      received the additional $1,500,000.Additionally, $750,000 of the $3,500,000
      proceeds from the closing were placed into an escrow account, to be used
      exclusively for making the scheduled principal and interest payments on the
      note. Accordingly, such amount has been recorded as restricted cash in the
      accompanying consolidated balance sheet. In connection with Note B, the Company
      issued 3,476,190 warrants at an exercise price of $0.63 to CAMOFI that
      expire on February 28, 2013. The
      warrants vested and became fully exercisable on the issuance date. In accordance
      with EITF Issue No. 98-5 and Accounting Principles Board Opinion (“APB”) No. 14,
      the Company allocated the $3,500,000 debt proceeds between the relative fair
      values of the warrants and the fair value of the beneficial conversion feature
      (BCF”). Pursuant to EITF Issue Nos. 98-5 and 00-27, the conversion feature of
      Note B provides for a rate of conversion that is below market value. The
      resulting BCF and other debt discount on Note B totaled $3,500,000 and are
      being
      amortized to interest expense over the life of the loan. As of December 31,
      2006, approximately $972,000 was amortized to interest expense.





At
      December 31, 2006, future minimum principal payments on the note payable
      approximate the following for the years ending December 31:





2007
            
            
            1,400,0002008
            
            
            1,400,0002009
            
            
            233,333$
            3,033,333




On
        December 19, 2006, the Company entered into an Amended and Restated Registration
        Rights Agreement (the “Agreement”) with CAMOFI. Pursuant to the Amendment the
        Company agreed to file registration statements to cover the resale of the
        shares
        issuable upon conversion of the CAMOFI Note and warrants as follows:
 
 i)
        on or
        before January 31, prepare and file with the United States Securities and
        Exchange Commission (“SEC”) a Registration Statement covering the resale of all
        common Stock issuable upon conversion of the 12% Senior Secured Convertible
        Note
        dated February 28, 2009, up to 33% of our issued and outstanding stock;
 
 ii)
        within 90 days from effectiveness of the Registration Statement referred
        to in
        i) above, prepare and file a Registration Statement covering the resale of
        all
        common Stock issuable upon conversion of the 12% Senior Secured Convertible
        Note
        dated February 28, 2009 to the extent not registered above plus all shares
        of
        common stock underlying the Purchaser Warrants, up to 33% of our issued and
        outstanding stock;




Page
          F-21
 
  **NEW
          CENTURY COMPANIES, INC. AND SUBSIDIARY**


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**6.
      CONVERTIBLE DEBT** (continued)




ii)
      within 90 days from effectiveness of the Registration Statement referred to
      in
      ii) above, prepare and file a Registration Statement covering the resale of
      all
      common Stock issuable upon conversion of the 12% Senior Secured Convertible
      Note
      dated February 28, 2009 plus all shares of common stock underlying the Purchaser
      Warrants to extent not registered above, up to 33% of our issued and outstanding
      stock;





iv)
      within 90 days from effectiveness of the Registration Statement referred to
      in
      iii) above, prepare and file a Registration Statement covering the resale of
      all
      additional Purchaser Warrants to extent not registered above, up to 33% of
      our
      issued and outstanding stock.





Pursuant
      to the Agreement, CAMOFI agreed to waive all liquidated damages accrued prior
      to
      the date of the Amendment. However,
      failure to meet the timetable set forth above will subject the Company to
      liquidated damages equal to 1.5% of the outstanding principal of the Notes
      for
      any registrable securities then held by CAMOFI for the first 30 days (or part
      thereof) after the default date and an additional 1.5% for any subsequent 30-day
      period (or part thereof), thereafter or a maximum of 10% of the remaining
      balance of the note.





As
      a
      result of the amended registration rights agreement and the limit of 10% placed
      on the amount of liquidated damages to be paid if the Company does not have
      an
      effective registration statement in accordance with the amended registration
      rights agreement, and since the warrant agreement provides the option of
      settling the warrant obligation by issuing unregistered shares using a cashless
      exercise feature in the event that there is no effective registration statement
      within the required time period, the warrants have met all the criteria outlined
      in EITF 00-19 to be classified as equity. Accordingly, on December 19, 2006,
      the
      date of the amended agreement, the Company re-evaluated the estimated fair
      value
      of the warrant liability at approximately $626,000 using a Black Scholes option
      pricing model. The decrease in fair value totaling approximately $1,495,000
      was
      recorded as a credit to derivative liability expense in the accompanying
      condensed consolidated statements of operations and the warrants were
      reclassified to additional paid-in capital.





**Other
      Transactions**





In
      connection with the Agreement, the Company issued to CAMOFI warrants to purchase
      1,500,000 shares of common stock of our common stock, at an exercise price
      of
      $0.35 for a term of seven years .  Per
      EITF
      96-18, Since the warrants are exercisable immediately, and the services (waiver
      of liquidated damages accrued as a result of the Company’s failure to register
      the warrants issued with the debt) were complete at the same time, the value
      of
      the services is deemed to be fair value of the warrants on the measurement
      date,
      which is the date of the transaction. The warrants
      were valued at $300,000, using a Black-Scholes option pricing model on the
      dates
      of grant and were recorded as interest expense in the Company’s consolidated
      financial statements.





Page
          F-22





**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**6.
      CONVERTIBLE DEBT** (continued)





**Other
      Transactions** (continued)





In
      connection with the CAMOFI Note, the Company paid $393,000 in cash for financing
      costs. Such amount was recorded as deferred financing costs and are being
      amortized on a straight line basis over the life of the note. In addition,
      the
      Company issued 722,539 warrants to Ascendiant Securities, LLC, (the “Placement
      Agent) with an exercise price of $0.63 and expire on February 28, 2013. The
      warrants were valued using a Black Scholes option pricing model at $455,200
      and
      were recorded as deferred financing costs and amortized to interest expense
      over
      the remaining life of the note. In connection with Note B, the Placement Agent
      also received 250,000 restricted shares of common stock valued at $157,500
      (based on the value of the Company’s stock at the date of issuance) which were
      also recorded as deferred financing costs and amortized to interest expense
      over
      the life of the note.




The
      total
      financing costs incurred in connection with Note B totaled approximately
      $1,065,000, of which approximately $289,000 was amortized to interest expense
      during the year 2006.





The
      CAMOFI Note and corresponding warrants were offered and sold to CAMOFI in a
      private placement transaction made in reliance upon exemptions from registration
      pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
      promulgated thereunder. CAMOFI is an accredited investor as defined in Rule
      501
      of Regulation D promulgated under the Securities Act of 1933.





**The
      Conversion Option**





SFAS
      No.
      133 states that a contract issued by an entity that is both (a) indexed to
      its
      own stock and (b) would be classified in stockholders' equity if it were a
      freestanding financial instrument is not a derivative for purposes of that
      pronouncement. Management has concluded that the CAMOFI debt financing
      transaction's conversion option is "indexed to the Company's own stock" as
      that
      term is defined by EITF Issue No. 01-6, "The Meaning of Indexed to a Company's
      Own Stock". In addition, since the debt financing transaction has been
      determined to be a "conventional convertible debt instrument" as defined in
      EITF
      Issue No. 05-2, "The Meaning of "Conventional Convertible Debt Instrument"
      in
      Issue 00-19", the requirements of EITF Issue No. 00-19 do not apply. Lastly,
      the
      debt host contract is not a derivative in its entirety and (based on SFAS No.
      133) the conversion option need not be bifurcated from such contract. Therefore,
      the conversion option is not a derivative instrument as contemplated by EITF
      Issue No. 00-19 or SFAS No. 133. As explained below, the Company has therefore
      applied intrinsic value accounting to the BCF embedded in the conversion
      option.





**Intrinsic
      Value Accounting for the BCF**





As
      explained in the following paragraph, the Company has accounted for the BCF
      in
      the CAMOFI debt financing transaction in accordance EITF Issue No. 98-5, EITF
      Issue No. 00-27, and APB No. 14. The excess of the proceeds over the estimated
      fair value of the warrants (see "Accounting for the Warrants" below) of
      approximately $1,310,000 was used to calculate the effective conversion price
      of
      $0.50 per share.




Page
          F-23




**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
        31, 2006**


**6.
      CONVERTIBLE DEBT** (continued)





**Intrinsic
      Value Accounting for the BCF** (continued)





The
      difference between the effective conversion price and the fair value of the
      debt
      at the commitment date of $0.236 per share resulted in a "theoretical"
      beneficial conversion feature of approximately $2,190,000. Since the BCF cannot
      exceed the proceeds allocated to the debt, the Company recorded a debt issuance
      discount on Note B of $1,310,000 which is being amortized to interest expense
      (using the effective interest method) over the three-year term of the note.
      The
      Company recorded interest expense on such BCF of approximately $364,000 during
      the year ended December 31, 2006 in the accompanying consolidated statement
      of
      operations.





**Total
      Debt Discounts**





The
      remaining BCF and debt discount balances on Note B associated with the
      conversion option of the debt and the warrants, respectively, totaled
      approximately $2,528,000 at December 31, 2006 and is presented net of the
      $3,033,000 principal balance of Note B in the accompanying consolidated balance
      sheet.








**7.
      INCOME TAXES**





During
      2006 and 2005, the provision for taxes differs from the amounts computed by
      applying the U.S. Federal income tax rate of 34% to income before provision
      for
      taxes as a result of the following:


**2006**
              
              **2005**Computed
                  “expected” tax (benefit) expense
              
              $
              (367,000
              )
              $
              227,000Addition
                  to (reduction) in income taxesresulting
                  from:State
                  income taxes, net of federal benefit
              
              
              (65,000
              )
              
              40,800Change
                  in deferred tax asset valuation allowance
              
              
              416,000
              
              
              (267,000
              )Non-deductible
                  expenses
              
              
              16,800
              
              
              -$
              800
              
              $
              800





Page
          F-24




**NEW
          CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
          31, 2006**





**7.
      INCOME TAXES** (continued)





The
      effects of temporary differences that give rise to significant portions of
      deferred tax assets and liabilities at December 31, 2006 and 2005 are presented
      below:


Deferred
                  tax assets:Tax
                  net operating loss carryforwards
              
              $
              4,600,000
              
              
              3,955,000Warrant
                  liability
              
              
              (584,000
              )
              
              -Accrued
                  inventory reserve
              
              
              114,000
              
              
              167,000Accrued
                  expenses
              
              
              397,000
              
              
              18,000Total
                  gross deferred tax asset
              
              
              4,527,000
              
              
              4,140,000Less
                  valuation allowance
              
              
              (4,527,000
              )
              
              (4,140,000
              )Total
                  net deferred tax asset
              
              $
              -
              
              $
              -


The
      valuation allowance increased by $387,000 and decreased by $267,000 and during
      the years ended December 31, 2006 and 2005, respectively. The current provision
      for income taxes for the years ended December 31, 2006 and 2005 is not
      significant and due primarily to certain state taxes.





At
      December 31, 2006, the Company had net tax operating loss carryforwards of
      approximately $12.6 million and $9.9 million available to offset future taxable
      federal and state income, respectively. If not utilized to offset future taxable
      income, the federal and state carryforwards will expire in various years through
      2026 and 2015, respectively. In the event the Company were to experience a
      greater than 50% change in ownership as defined in Section 382 of the Internal
      Revenue Code, the utilization of the Company’s tax net operating loss
      carryforwards could be severely restricted.





**8.
      EQUITY TRANSACTIONS**





***Preferred
      Stock***





The
      Company has authorized 15,000,000 shares of cumulative, convertible Series
      B
      Preferred Stock (“Series B”) with a par value of $1 per share. The Series B has
      a mandatory cumulative dividend of $1.25 per share, which is payable on a
      semi-annual basis, and convertible into 1.67 shares of the Company’s common
      stock, does not have any voting rights, and has liquidation preference equal
      to
      $25 per share before any payment or distribution shall be made on common stock.
      As of December 31, 2001, in accordance with the conversion terms of the
      Preferred Series B shares, 95,023 shares of the common stock remained un-issued
      and committed, which the Company has reclassified to common stock during the
      year ended December 31, 2002 because the stock had constructively been issued.




Page
          F-25


**NEW
            CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006**





**8.
      EQUITY TRANSACTIONS** (continued)





***Preferred
      Stock*** (continued)





In
      March
      2002, the Board of Directors authorized 75,000 shares of 5% cumulative,
      convertible Series C Preferred Stock (“Series C”) with a par value of $1 per
      share. The Series C has a mandatory cumulative dividend of $1.25 per share,
      which is payable on a semi-annual basis in June and December each year to
      holders of record on November 30 and May 31, does not have any voting rights
      and
      has liquidation preferences, as defined. Each share of Series C is convertible
      at the option of the holder into 16.667 shares of the Company’s common
      stock.





During
      the years ended December 31, 2006 and 2005, the Company issued 20,000 and
      530,001 shares of restricted common stock, respectively, upon conversion of
      1,200 and 31,800 shares of Series C, respectively, at a conversion rate of
      16.667-to-1.





In
      March
      2006, some of the Company’s preferred shareholders elected to waive their rights
      to receive dividends. Accordingly, the Company recorded a reduction in dividends
      payable of $282,875.





At
      December 31, 2006, the Company had a total of 27,780 shares of Series C issued
      and outstanding with accumulated dividends totaling approximately $238,000,
      which is included in dividends payable in the accompanying consolidated balance
      sheet.





During
      the year ended December 31, 2004, the Company issued a Private Placement
      Memorandum (“PPM”) in which the Company offered to eligible investors, as
      defined, a maximum of 30,000 shares of Series D Preferred Stock (“Series D”),
      with a required minimum offering of 1,000 shares of Series D to be sold at
      $25
      per share. During the year ended December 31, 2004 and pursuant to the PPM,
      the
      Company issued 23,640 shares of Series D to eligible investors for proceeds
      totaling $521,000, net of $30,000 paid to the broker/dealer and $40,000 of
      accounts payable which were exchanged for shares. Such offering costs were
      included as an offset to additional paid-in capital in the accompanying
      consolidated financial statements. Since the related conversion rate is 50:1,
      the effective conversion rate of $0.50 resulted in a deemed dividend of
      $153,660, which was included in accumulated deficit. The deemed dividend is
      also
      reflected as an increase in the net loss attributable to common shareholders
      for
      2004 (see Note 9). Additionally, the broker/dealer was granted Three-Year
      Placement Warrants, as defined in the PPM, with a cashless exercise feature
      to
      purchase 25,000 shares of the Company’s common stock at prices ranging from
      $0.50 to $1.00. No expense
      was recorded related to the granting of such warrants as they were considered
      an
      offering cost. The warrants vested immediately and expired on March 4,
      2007.





In
      July
      2005, the Company issued 600,000 shares of restricted common stock upon
      conversion of 12,000 shares of Series D at a conversion rate of
      50-to-1.





In
      March
      2006, one of the Company’s preferred series D shareholders elected to waive
      their rights to receive dividends. Accordingly, the Company recorded a reduction
      in dividends payable of $5,000.


Page
            F-26
 **NEW
            CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006**





**8.
      EQUITY TRANSACTIONS**  (continued)





*Preferred
      Stock*** (continued)





At
      December 31, 2006, the Company had a total of 11,640 shares of Series D issued
      and outstanding, with accumulated dividends totaling approximately $125,000,
      which is included in dividends payable in the accompanying consolidated balance
      sheet.





***Common
      Stock***





During
      the year ended December 31, 2001, the Company received a subscription receivable
      of $87,500 from a member of the Board of Directors in exchange for shares of
      the
      Company’s restricted common stock. The subscription receivable bears interest at
      an annual rate of 6%. Principal and any unpaid interest were due on October
      6,
      2001. As of December 31, 2006, the subscription receivable remains unpaid.





During
      the year ended December 31, 2002, the Company received two subscriptions
      receivable totaling $375,000 in exchange for 250,000 restricted shares of common
      stock. The receivables bear interest at an annual rate of 5%. Principal and
      any
      unpaid interest on both subscriptions receivable were due on August 22, 2003,
      and are in default as of December 31, 2006.





As
      of
      December 31, 2006, the subscription receivable remains unpaid. The related
      accrued interest receivable and interest income are insignificant to the
      consolidated financial statements.





On
      October 27, 2005, the Company issued 300,000 shares of restricted common stock
      to a consultant for corporate finance and investor relations services under
      a
      one year consulting agreement. The Company recorded the fair value of the common
      stock (based on the trading price of the Company's stock on the date of
      issuance) totaling $132,000 as deferred consulting fees and is amortizing such
      amount over the twelve month term of the agreement. Due to a significant
      increase of the Company’s stock price from issuance to the end of the reporting
      period, in accordance with the EITF 96-18, the Company performed a recalculation
      of the deferred consulting fees based on the December 31, 2005 fair value stock
      price, and adjusted the fees to $186,000. The additional $54,000 difference
      was
      recorded as deferred consulting fees and was amortized over the remaining term
      of
      the contract. At December 31, 2005, the remaining deferred consulting fees
      under
      this contract totaled $155,000. At December 31, 2006, In accordance with the
      EITF 96-18, the Company performed a recalculation of the deferred consulting
      fees based on the fair value stock price at the completion of contract, and
      adjusted the fees to $60,000.




On
      April
      25, 2006, the Company issued 9,091 shares of common stock for conversion of
      $6,000 of interest due on Note A. The common stock conversion price was $0.66
      in
      accordance with the terms of Note A.




On
      May
      15, 2006, the Company issued 10,227 shares of common stock for conversion of
      $6,750 of interest due on Note A. The common stock conversion price was $0.66
      in
      accordance with the terms of Note A.





Page
          F-27


**NEW
            CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006**


**8.
      EQUITY TRANSACTIONS** (continued)





***Common
      Stock*** (continued)





On
      March
      7, 2006 the
      Company issued 250,000 shares of common stock to a third party as financing
      fees
      in connection with Note B. The shares were valued at $157,500 (based on the
      estimated fair value of the common stock on the date of the transaction ) and
      recorded as deferred financing costs and amortized to interest expense over
      the
      life of the note. At December 31, 2006, approximately $44,000 was amortized
      to
      interest expense.




In
      July
      2006, the Company issued 100,000 shares of common stock valued at $41,000 (based
      on the market price of the shares on the date the services were completed)
      to a
      third party for corporate finance and investor relations services under one
      month contract. The amount was recorded as consulting expense during the year
      ended December 31, 2006.





In
      December 2006, the Company issued 150,000 shares of common stock valued at
      $28,500 (based on the market price of the shares on the date of grant) to a
      third party for public relations consulting services. In accordance with EITF
      96-18, the Company revalued the transaction at December 31, 2006 and adjusted
      the fees to $31,500. The additional $3,000 difference was recorded as deferred
      consulting fees and is being amortized over the remaining term of the contract.
      At December 31, 2006, the remaining deferred consulting fees under this contract
      totaled $9,000.




In
      April
      2005, the Company issued 75,000 shares to a consultant for consulting services.
      However, the transaction was inadvertently overlooked by management and was
      not
      recorded in 2005. Since the value of the transaction was deemed to be immaterial
      to the financial statements as a whole for the quarter ended June 30, 2005
      and
      the year ended December 31, 2005, management recorded the transaction in the
      current year. The transaction was valued at approximately $14,000 (based on
      the
      stock price on the date of grant).





On
      October 26, 2005, the Company issued 100,000 shares of restricted common stock
      to a consultant for corporate finance and investor relations services under
      a
      one year consulting agreement. The Company recorded the fair value of the common
      stock (based on the trading price of the Company's stock on the date of
      issuance) totaling $42,000 as deferred consulting fees and was amortizing such
      amount over the twelve month term of the agreement. Due to a significant
      increase of the Company’s stock price from issuance to the date when the
      services were deemed completed, at December 31, 2005, in accordance with EITF
      96-18, the Company performed a recalculation of the deferred consulting fees
      based on December 31, 2005 and adjusted the fees to $62,000. The additional
      $20,000 difference was recorded as deferred consulting fees and was amortized
      over the remaining term of the contract. At December 31, 2005, the remaining
      deferred consulting fees under this contract totaled $50,633. At December 31,
      2006, the deferred consulting fees under this contract were amortized
      entirely.




Page
          F-28


**NEW
            CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006**





**8.
      EQUITY TRANSACTIONS** (continued)





***Common
      Stock*** (continued)





On
      October 11, 2005, the Company issued 100,000 shares of restricted common stock
      to a consultant for corporate finance and investor relations services under
      a
      one year consulting agreement. The Company recorded the fair value of the common
      stock (based on the trading price of the Company's stock on the date of
      issuance) totaling $41,000 as deferred consulting fees and is amortizing such
      amount over the twelve month term of the agreement. Due to a significant
      increase of the Company’s stock price from issuance to the date when the
      services were deemed completed, at December 31, 2005, in accordance with the
      EITF 96-18, the Company performed a recalculation of the deferred consulting
      fees based on the December 31, 2005 fair value stock price, and adjusted the
      fees to $62,000. The additional $21,000 difference was recorded as deferred
      consulting fees and was amortized over the remaining term of the contract.
      At
      December 31, 2005, the remaining deferred consulting fees under this contract
      totaled $49,083. At December 31, 2006, the deferred consulting fees under this
      contract were amortized entirely.





***Stock
      Options and Warrants***





Under
      the
      terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase
      an aggregate of 5,000,000 shares of common stock may be issued to key employees,
      as defined. 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.





Under
      the
      terms of the Company's non-statutory stock option plan ("NSSO"), options to
      purchase


an
      aggregate of 1,350,000 shares of common stock may be issued to 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 vest on the
      date
      of grant.





During
      the year ended December 31, 2006, the Company granted 2,000,000 incentive stock
      options to its two officers under the Company’s ISOP. The options have
      an exercise price of $0.20 and vest on December 1, 2007. None of the options
      granted to employees during the year were vested as of December 31, 2006. During
      the year ended December 31, 2006, the Company granted 6,403,728 warrants to
      certain note holders, its assignee and placement agents, in connection with
      issuance of two convertible notes.





Page
          F-29


**NEW
            CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006**





**8.
      EQUITY TRANSACTIONS**(continued)





**Stock
      Options and Warrants**(continued)





The
      following is a status of the stock options outstanding at December 31, 2006
      and
      2005 the changes during the two years then ended:


2006
              
              2005Options
              
              Weighted
              
              Options
              
              WeightedAverage
                  Price
              
              
              
              Average
                  PriceOutstanding,beginning
                  of year
              
              
              1,413,500
              
              $
              0.25
              
              
              1,483,250
              
              $
              0.82Granted
              
              
              2,000,000
              
              $
              0.20
              
              
              --
              
              
              --Exercised
              
              
              --
              
              
              --
              
              
              --
              
              
              --Cancelled/Terminated
              
              
              (163,500
              )
              
              (0.90
              )
              
              (69,750
              )
              
              (9.57
              )Total
                  Outstanding,end
                  of year
              
              $
              3,250,000
              
              $
              0.25
              
              
              1,413,500
              
              $
              0.25Exercisable
              
              
              1,250,000
              
              
              0.32
              
              
              1,413,500
              
              
              0.25


The
      weighted average grant-date fair falue of the options granted was $0.18. The
      fair value of each share-based award is estimated on the grant date using the
      Black Scholes option-pricing formula. Expected volatilities are based on the
      historical volatility of the Company’s stock price (328%). The risk-free rate
      for periods within the contractual life of the option is based on the U.S.
      Treasury interest rates in effect at the time of grant (4.60%). All of the
      options granted during the year have an expected term of 5
      years.


The
        following table summarizes information related to stock options outstanding
        at
        December 31, 2005:
  Options
                    OutstandingExercise
                    Price
                
                Number
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Life
                    (Years)
                
                Weighted
                  Average
                  Exercise
                    Price$
                    0.25
                
                
                1,300,000
                
                
                2.7
                
                $
                0.25$
                    1.00
                
                
                100,000
                
                
                1.7
                
                
                1.10$
                    5.00
                
                
                5,000
                
                
                2.0
                
                
                5.00$10.00
                
                
                8,500
                
                
                0.5
                
                
                10.001,413,500
                
                
                
                
                
                0.39


The
      following table summarizes information related to stock options outstanding
      at
      December 31, 2006:




Options
                  OutstandingExercise
                  Price
              
              Number
                  of OptionsOutstanding
              
              Weighted
                Average
                  Remaining Contractual Life (Years)
              
              Average
                  Exercise
                Price$0.20-
                  $0.25
              
              
              3,150,000
              
              
              3.19
              
              $
              0.22$1.10
              
              
              100,000
              
              
              0.69
              
              
              1.103,250,000
              
              
              
              
              $
              0.25




Page
          F-30




**NEW
              CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006**


**8.
      EQUITY TRANSACTIONS**(continued)





**Stock
      Options and Warrants**(continued)





From
      time
      to time, the Company issues warrants to employees and to third parties pursuant
      to various agreements, which are not approved by the shareholders.





The
      following is a status of the warrants outstanding at December 31, 2006 and
      2005
      the changes during the two years then ended:




2006
              
              2005Warrants
              
              WeightedAverage
                  Price
              
              Warrants
              
              WeightedAverage
                  PriceOutstanding,beginning
                  of year
              
              
              55,000
              
              $
              0.86
              
              
              228,333
              
              $
              7.80Granted
              
              
              6,371,455
              
              $
              0.57
              
              
              --
              
              
              --Exercised
              
              
              --
              
              
              --
              
              
              --
              
              
              --Cancelled/Terminated
              
              
              (22,727
              )
              
              (0.66
              )
              
              (173,333
              )
              
              (10.00
              )Outstanding
                  and exercisable,end
                  of year
              
              
              6,403,728
              
              $
              0.57
              
              
              55,000
              
              $
              0.86






The
        following table summarizes information related to warrants outstanding at
        December 31, 2005:
 
 Warrants
                  OutstandingExercise
                  Price
              
              Number
              
              Weighted
                Average
                Remaining
                Contractual
                Life
                  (Years)
              
              Weighted
                Average
                Exercise
                Price$
                  0.50 - $0.75
              
              
              20,000
              
              
              1.2
              
              $
              0.56$
                  1.00 - $1.25
              
              
              35,000
              
              
              1.8
              
              
              1.0455,000
              
              
              
              
              
              0.86


The
      following table summarizes information related to warrants outstanding at
      December 31, 2006:




Warrants
                  OutstandingWeightedAverage
              
              WeightedNumber
                  of
              
              Remaining
              
              AverageWarrants
              
              Contractual
              
              ExerciseExercise
                  Price
              
              Outstanding
              
              Life
                  (Years)
              
              Price$0.35
              
              
              1,500,000
              
              
              1.63
              
              $
              0.35$0.50-0.75
              
              
              4,868,728
              
              
              2.87
              
              
              0.63$1.00-1.25
              
              
              35,000
              
              
              1.09
              
              
              1.046,403,728
              
              
              
              
              $
              0.57
  Page
            F-31


**NEW
              CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006**





**9.
      LOSS PER SHARE**





The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted earnings per share computations for the years ended December 31,
      2006 and 2005:





**2006**
            
            **2005**Net
                income (loss)
            
            $
            (1,051,744
            )
            $
            668,359Cumulative
                preferred dividends (See Note 8)
            
            
            (84,800
            )
            
            (156,300
            )Waived
                Cumulative preferred dividends (See Note 8)
            
            
            287,875
            
            
            -Numerator
                for basic and diluted earning (loss) pershare:Net
                income (loss) applicable to common stockholders
            
            
            (848,669
            )
            
            512,059Denominator
                for basic earnings (loss) per share:Weighted
                average shares
            
            
            11,332,289
            
            
            9,186,987Denominator
                for diluted earnings ( loss) per share:Weighted
                average shares
            
            
            11,332,289
            
            
            9,836,987Basic
                earnings (loss) per share
            
            $
            (0.07
            )
            $
            0.06Diluted
                earnings (loss) per share
            
            $
            (0.07
            )
            $
            0.05








**10.
      COMMITMENTS AND CONTINGENCIES**





***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. 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 service.





***Leases***





The
      Company leases its office and warehouse facility under a non-cancelable
      operating lease agreement. The lease requires monthly lease payments of
      approximately $33,000, with annual increases of 3% through December 2007. The
      lease is personally guaranteed by one of the stockholders.




Page
          F-32




**NEW
              CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006**


**10.
      COMMITMENTS AND CONTINGENCIES** (continued)





Future
      minimum lease payments on the operating lease obligations approximate $400,000
      for the year ended December 31, 2007. The Company currently has no future lease
      commitments beyond such date.





Rental
      expense for operating leases approximated $410,000 for each of the years ended
      December 31, 2006 and 2005.





***Legal***





From
      time
      to time, the Company may be involved in various claims, lawsuits, and disputes
      with third parties, actions involving allegations or discrimination or breach
      of
      contract actions incidental in the normal operations of the business. The
      Company is currently not involved in any such litigation, which management
      believes could have a material adverse effect on its financial position or
      result of operations.





***Backlog*** (Unaudited)





The
      following schedule approximates a reconciliation of backlog representing signed
      contracts:


Balance,
                January 1, 2006
            
            $
            3,374,000New
                contracts, January 1, 2006 through December 31, 2006
            
            
            8,540,00011,914,000Less,
                contract revenue earned - January 1, 2006 through December 31,
                2006
            
            
            (8,319,000
            )Balance
                December 31, 2006
            
            $
            3,595,000




Page
          F-33


**NEW
              CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006**





**11.
      SUBSEQUENT EVENTS**





On
      January 23, 2007, the Company paid off the principal balance and all accrued
      interest outstanding on Note A.





On
      January 31, 2007, the Company filed a Registration Statement to register
      4,235,000 common stock issued or issuable in connection with CAMOFI convertible
      note. Such Registration statement has not been declared effective by
      the Securities and Exchange Commission as of March 28,
      2007.





On
      March
      15, 2007, the Company issued 550,000 shares of restricted common stock under
      three consulting agreements, for investor relations and financial
      services.




On
        March
        27, 2007, the Company entered into an Amended and Restated Registration Rights
        Agreement (the “2 nd Amendment”) with CAMOFI. Pursuant to the Amendment, CAMOFI agreed to waive any
        liquidated damages accrued prior to the date of the 2 nd Amendment. Also, in 30 days after the date of the 2 nd Amendment, the Company agreed to file a registration statements to cover
        the
        resale of the shares issuable upon conversion of
        the
        CAMOFI Note up to 33% of the Company’s issued and outstanding stock, and, in 90
        days after the date of filing, to have the registration statement declared
        effective by the Security Exchange Commission.


Page
          F-34