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, 2003

                                       OR

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
      ACT OF 1934.

      FOR THE TRANSITION PERIOD FROM            TO


                        COMMISSION FILE NUMBER 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 EXCHANGE
                TITLE 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)


                                (TITLE OF CLASS)


                                       1
<PAGE>

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

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

      State issuer's revenue for its most recent fiscal year $6,908,087.

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates on March 1, 2004was approximately
$3,776,686 based on the average bid and ask price on ___, 2004. As of March 31,
2004 there were 6,895,265 shares of common stock issued and outstanding.



                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

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

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

================================================================================

                                       2
<PAGE>

<TABLE>
<CAPTION>

                           NEW CENTURY COMPANIES, INC.
                                   FORM 10-KSB
                                      INDEX

                                                                                                      PAGE
                                                    PART I

<S>  <C>                                                                                                 <C>
Item 1. Description of Business                                                                          1

Item 2.   Properties                                                                                     5

Item 3.   Legal Proceedings                                                                              5

Item 4.   Submission of Matters of a Vote of Security Holders                                            5

                                                   PART II

Item 5.   Market for Company's Common Equity and Related Stockholder Matters                             5

Item 6.   Management's Discussion and Analysis or Plan of Operations                                     8

Item 7.   Financial Statements                                                                          14

Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.         14

Item 8A   Controls and Procedures                                                                       14

                                                   PART III

Item 9.   Directors and Executive Officers, Promoters and Control Persons; Compliance with Section
          16(a) of the Exchange Act                                                                     15

Item 10. Executive Compensation 16

Item 11.  Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters      17

Item 12.  Certain Relationships and Related Transactions                                                18

Item 13.  Exhibits and Reports on Form 8-K                                                              18

Item 14    Principal Accountant Fees and Services                                                       19

Signatures                                                                                              20

Financial Statements                                                                                   F-1

==========================================================================================================
</TABLE>

                                       3
<PAGE>


                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS.

      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.

OVERVIEW

Corporate History and Operations

      The common stock of New Century Companies, Inc. ("New Century" or the
"Company") (previously InternetMercado.Com) is quoted on the OTC Bulletin Board
under the symbol "NCNC". 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. Pursuant to the merger, all of the
outstanding shares of New Century Remanufacturing, Inc., a California
corporation, incorporated on March 12, 1996 ("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 issued and outstanding. Immediately after the merger, all
then existing officers and directors of the Company resigned and the management
of NCR was elected and appointed to such positions; thereby effecting a change
of control. Although NCR became a wholly-owned subsidiary of the Company
following the transaction, because the transaction resulted in a change of
control, the transaction was recorded as a "reverse merger" whereby NCR was
considered to be the accounting acquirer of the Company.

      After the reverse merger the Company changed its name to New Century
Companies, Inc. The results of 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 manufactures original
equipment, CNC large turning lathes and attachments under the trade name Century
Turn. In turn, NCR is principally engaged in acquiring, remanufacturing and
selling pre-owned CNC machine tools to manufacturing customers across the United
States of America.

      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
<PAGE>

      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 the products 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. In 2003 our largest customer was Kaydon Bearing which accounted for a
third of our revenues.

SUPPLIERS

      Our three largest suppliers are GE Fanic Automation, TCI Precision Metals
and Sandrik Coromat.

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 through
acquisitions and expanding into new markets by introducing new products and
services.


                                       5
<PAGE>

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.

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. The cost of
research and development, all of which has been charged to operations, amounted
to approximately $1,500,000 over the last three years.

PATENTS AND TRADEMARKS

      The Company has applied for patents, trademarks and copyrights 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, 2003, we had 45 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.


                                       6
<PAGE>

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 maintain 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.

ITEM 2.     PROPERTIES.

      We lease our headquarters in Santa Fe Springs, California, which expires
in 12/31/06, 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


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, 2003.

                                     PART II

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

      Our common stock trades on the NASDAQ Over-The-Counter Bulletin Board
under the symbol "NCNC". 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.



                                       7
<PAGE>

For Year Ended 2003

                                                   HIGH     LOW

December 31                                      $  0.83   0.69
September 30                                        0.34   0.31
June 30                                             0.62   0.56
March 31                                            0.98   0.89




For Year Ended 2002

                                                  HIGH     LOW

December 31                                      $  2.35   1.08
September 30                                        2.60   1.05
June 30                                             3.44   1.80
March 31                                            3.45   1.25


      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, 2003 we had 389 holders of record of our common stock
representing approximately 1,300 individual participants. 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.

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

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 September 2003, the Company issued 31,800 shares of series C, valued at
approximately $111,000 (based on the estimated fair market value on the date of
grant) to consultants for services to be rendered through March 2004. The
Company has expensed approximately $65,000 in the year ended December 31, 2003
related to such issuance.


                                       8
<PAGE>

During the year ended December 31, 2003, holders of the Company's Preferred C
converted 14,400 shares into 240,006 shares of common stock.

COMMON STOCK

During the quarter ended December 31, 2003, the Company issued 719,918 shares of
restricted common stock valued at $202,500 (estimated based on the market price
on the date of grant) to consultants for services to be rendered through
September 2004. The Company recorded the entire value to deferred consulting
fees and is amortizing the amount to consulting expense over the periods of
service. As of December 31, 2003, the total unamortized consulting fees
approximated $64,000, which is recorded as an increase to stockholders deficit.

During the year ended December 31, 2003, the Company issued 100,000 shares of
restricted common stock to a shareholder as penalty for not registering shares
previously issued under Form SB-2 in a timely manner. The common stock was
valued at $21,000 (estimated based on the market price on the date of grant).

During the year ended December 31, 2003, the Company issued 64,720 shares of
restricted common stock in reconciliation with the reverse merger in 2001.

STOCK OPTIONS AND WARRANTS

Under the terms of the Company's Incentive Stock Option Plan ("ISOP"), options
to purchase an aggregate of 1,000,000 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.

In September 2003, the Company granted options to purchase an aggregate of
1,300,000 shares of restricted common stock, at an exercise price of $0.25 per
share (the fair market value of the Company's common stock on the date of
grant), to various employees of the Company. The options vested immediately and
are exercisable through September 2008.

During the year ended December 31, 2003, the Company granted a warrant to
purchase 25,000 shares of the Company's restricted common stock in connection
with the issuance of a note payable (see Note 5). The pro-rata value of the
warrant was $13,000 (estimated based on the Black-Scholes option pricing model
pursuant to SFAS 123). The warrant has an exercise price of $1.00, vests
immediately and is exercisable through January 2008.

During the year ended December 31, 2003, the Company granted a warrant to
purchase 5,000 shares of the Company's restricted common stock in connection
with the deferral of the maturity date of a note payable (see Note 5). The value
of the warrant was $4,500 (estimated based on the Black-Scholes option pricing
model pursuant to SFAS 123). The warrant has an exercise price of $1.25, vests
immediately and is exercisable through March 2008.


                                       9
<PAGE>


In December 2001, the Company issued 100,000 warrants to purchase common stock
for $2 per share, which is exercisable for two years from the date of issuance.
The warrants were issued in connection with a six-month, short-term note payable
and cancelled during fiscal 2003. In accordance with accounting principles
generally accepted in the United States, the proceeds of the financing have been
allocated to the debt and the warrants, based on their relative fair values.
Accordingly, a discount of $106,000 has been recorded as a reduction in the debt
balance, and the off-setting credit has been recorded as additional paid-in
capital. The debt discount was amortized and charged to interest expense over
the life of the debt. Amortization of the debt discount is included in interest
expense in the accompanying consolidated statement of operations for the year
ended December 31, 2002. As part of an extension agreement, the Company
effectively cancelled the original 100,000 warrants and issued warrants to
purchase 200,000 shares of common stock at an exercise price of $1.00, which
vested upon grant and expire in December 2003. As the pro-rata value of the
200,000 warrants issued approximates he amounts expensed in 2002, no additional
expense has been recorded. Note C is personally guaranteed by a stockholder and
is in default at December 31, 2003.

In September 2002, the Company granted 100,000 stock options to a third party
for services rendered valued at $68,000 (estimated based on the Black-Scholes
option pricing model pursuant to SFAS 123). The stock options had an exercise
price of $1.10, vested immediately and expired in September 2003.

The following is a status of the stock options and warrants outstanding at
December 31, 2003 and the changes during the two years then ended:

<TABLE>
<CAPTION>
                                                    Year Ended                          Year Ended
                                                   December 31,                        December 31,
                                                       2003                                2002
                                         ---------------------------------     ------------------------------
                                                                                                  Weighted
                                         Options and         Weighted          Options and         Average
                                           Warrants        Average Price         Warrants           Price
                                         -------------    ----------------     -------------     ------------

<S>                                           <C>         <C>                       <C>              <C>
Outstanding, beginning of year                741,583     $          8.06           641,583          $  9.15

Granted                                     1,530,000                0.36           100,000             1.10

Exercised                                           -                   -

Cancelled/Terminated                        (450,000)              (5.06)                 -                -
                                         -------------    ----------------     -------------     ------------

Outstanding and exercisable, end of year   1,821,583     $          2.34           741,583          $  8.06
                                         =============    ================     =============     ============

Weighted  average fair value of options
granted                                                   $           0.17                             $0.68
                                                          ================                       ============
</TABLE>


                                       10
<PAGE>


The following table summarizes information related to stock options outstanding
at December 31, 2003:

<TABLE>
<CAPTION>
                                                 EQUITY COMPENSATION PLAN INFORMATION

                                                                                                      NUMBER OF SECURITIES
                                                                                                      REMAINING AVAILABLE FOR
                                            NUMBER OF SECURITIES TO BE     WEIGHTED-AVERAGE           FUTURE ISSUANCE UNDER
                                             ISSUED UPON EXERCISE OF       EXERCISE PRICE OF        EQUITY COMPENSATION PLANS
                                              OUTSTANDING OPTIONS,        OUTSTANDING OPTIONS,    (EXCLUDING SECURITIES REFLECTED
                                              WARRANTS AND RIGHTS          WARRANTS AND RIGHTS           IN COLUMN(A))
                                                      (A)                        (B)                          (C)
                                              --------------------       ---------------------    -------------------------------
<S>                                                <C>                           <C>                          <C>
Equity compensation plans approved by
     security holders                              1,791,583                     6.58                         11,788,616

Equity compensation plans not approved
     by security holders                              30,000                     1.12                             33,600

Total                                              1,821,583                       --                         11,822,216
</TABLE>

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

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

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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 2003 were
negative as a result of a decrease in sales, management's strategy of continued
investment in research and development of new projects and of the corporate
expenses related to compliance with the regulatory requirements of being a
public company. The goal of these expenditures was to position New Century as a
leading manufacturer and remanufacturer of large horizontal and vertical turning
machines. New Century has completed the majority of this current development
effort and expects limited resources to be devoted to this area in the next
fiscal year. The Company's current strategy is to expand its customer sales base
with its present line of machine products. Plans for expansion are expected to
be funded through current working capital from ongoing sales. However,
significant growth will require additional funds in the form of debt or equity,
or a combination thereof. However, there can be no assurance these funds will be
available. The Company's growth strategy also includes strategic acquisitions in
addition to growing the current business. A significant acquisition will require
additional financing. There can be no assurance that the Company can obtain such
financing for the period ended December 31, 2003.


                                       11
<PAGE>

RESULTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2003 COMPARED TO
DECEMBER 31, 2002.

      Revenues. New Century generated revenues of $6,908,087 for the fiscal year
ended December 31, 2003, which was a $2,146,059 decrease from $9,054,146 for the
fiscal year ending December 31, 2002. The decrease is the result of a deficiency
in working capital which has limited our ability to fulfill customer orders.
Additionally, the overall market for machine tools is cyclical, reflecting
economic conditions, production capacity utilization, changes in tax and fiscal
policies, corporate profitability and financial condition as well as the general
level of business confidence. The Company anticipates an increase in customer
orders for next year, based on the growth of overall market, but there can be no
assurance of such orders.

      Gross Profit. There was a 137% decrease in gross profit for the fiscal
year ending December 31, 2003, due to lower revenues. Gross profit (loss) was
$(667,657), compared to $1,780,807 from the corresponding period in 2003. This
decrease is a result of the weak economy in the United States and competitive
market conditions which have dampened the demand for the Company's products.


      Net Loss . Net loss increased to $2,937,616 for the fiscal year ended
December 31, 2003 compared toa net loss of $1,760,601 for the fiscal year ended
December 31, 2002. The increase in net loss is primarily attributed to a
significant reduction in volume, which was due to lack of working capital.
Additionally, the Company recorded a loss on a deposit of $465,000 and a write
down of inventory of approximately $300,000.

      Interest Expenses. Interest expense for the fiscal year ending December
31, 2003 decreased to $295,338, compared to $610,675 for the period ended
December 31, 2002. The decrease of $315,337 is primarily the result of ending of
two short term loans of $900,000 each, on October 2002 and January 2003.

FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES

      Net cash increase of New Century during the fiscal year ended 2003 was
$75,693. The net cash used in financing activities of $459,223 decreased from
$1,711,392 cash provided by financing activities in the prior year. The
$2,170,615 cash used in financing activities increase is primarily due to
repayment of $900,000 of notes payable and a reduction of proceeds from the
issuance of notes payable approximating $796,000.
       The cash used in investing activities decreased from $247,144 to $10,407,
primarily due to reducing purchases of property and equipment. The Company plans
to continue to rely upon external financing sources to meet the cash requirement
of its ongoing operations. Management is currently seeking to raise additional
funding in the form of subordinated debt. The Company is currently negotiating
the terms of a $750,000 dollar subordinated debt offering, which once completed
may satisfy the Company's working capital requirements through 2004. However,
there is no guarantee that the Company will raise sufficient capital to execute
its business plan. To the extent that the Company is unable to raise sufficient
capital, the Company's business plan will be required to be substantially
modified and its operations curtailed. The Company's auditors have issued their
report which contains an explanatory paragraph as to the Company's ability to
continue as a going concern.

      The Company is currently addressing its liquidity issue by the following
actions:

o     The Company continues its aggressive program for selling inventory that
      has been produced or is currently in production.
o     The Company continues to implement plans to further reduce operating
      costs.
o     The Company is continually seeking investment capital through the public
      markets.

However, there is no guarantee that any of these strategies will enable the
Company to meet its obligations for the foreseeable future.


                                       12
<PAGE>

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 certified public accountants have stated in
their report included in this Form 10-KSB, that the Company has incurred
operating losses in the last two years, has a working capital deficit and a
significant stockholders' deficit. These conditions 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," 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. 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.

      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.


                                       13
<PAGE>

      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 materially differ from those estimates.

      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.

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.

      Effective December 27, 2003, the Company retained the accounting firm of
Squar, Milner, Reehl & Williamson, LLP ("Squar"), and terminated the accounting
firm of Singer, Lewak, Greenbaum & Goldstein LLP ("Singer"), as its independent
accountants. Singer had been retained by the Company as its independent
accountants on June 29, 2001. The retention of Squar was approved by the
Company's Board of Directors.

      Prior to Squar becoming the independent accountants for the Company,
neither the Company, nor anyone on its behalf, consulted with Squar regarding
either the application of accounting principles to a specific or contemplated
transaction, or the type of audit opinion that might be rendered on the
Company's financial statements; or any matter that was the subject of a
disagreement or event as defined at Item 304 (a)(1)(iv) of Regulation S-B.

      Singer audited the Company's financial statements for the fiscal years
ended December 31, 2000, 2001 and 2002. Singer's report for these fiscal years
did not contain an adverse opinion or a disclaimer of opinion, nor were they
qualified as to audit scope or accounting principles. However, Singer's report
for these fiscal years was modified to reflect uncertainty with respect to the
Company's ability to continue as a going concern.


                                       14
<PAGE>

      During the period from June 29, 2001 to December 31, 2003, there were no
disagreements with Singer on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Singer, would have caused
it to make reference to the subject matter of the disagreements in connection
with its report on the Company's financial statements. In addition, there were
no such events as described under Item 304(a)(1)(iv)(B) of Regulation S-B during
such period.

ITEM 8A. EVALUATION OF CONTROLS AND PROCEDURES

         EVALUATION OF 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, 2003 Form 10-K. Based upon that evaluation,
the CEO and CFO concluded that, as of December 31, 2003, our disclosure controls
and procedures were effective 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. Based on their most recent
evaluation as of the Evaluation Date, the CEO and the CFO have also concluded
that there are no significant deficiencies in the design or operation of
internal controls over financial reporting which are reasonably likely to
adversely affect the Company's ability to record, process, summarize and report
financial information, and such officers have identified no material weaknesses
in the Company's internal controls over financial reporting.

      CHANGES IN CONTROLS AND PROCEDURES

      There were no significant changes made in our internal controls over
financial reporting during the quarter ended December 31, 2003 that have
materially affected or are reasonably likely to materially affect these
controls. Thus, no corrective actions with regard to significant deficiencies or
material weaknesses were necessary.

      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.


                                       15
<PAGE>

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE 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, 2003. 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        POSITION
----                        ---        --------

David Duquette               59        Chairman of the Board, President and
                                       Director
Josef Czikmantori            50        Secretary and Director

      DAVID DUQUETTE. Mr. Duquette has served as the Chairman of the Board,
President 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,
but are reimbursed for out-of-pocket expenses, if any, incurred in attending the
board meetings.

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.

SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE.


                                       16
<PAGE>

      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, 2003 any reports required by Section 16(a) of the Securities
Exchange Act of 1934, as amended.

CODE OF ETHICS
For the year ended December 31, 2003, the Company did not have formal written
values and ethical standards. However, the Company management does communicate
values and ethical standards during company wide meetings. Such standards will
be outlined in the human resource manual to be completed before the end of 2004.


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 2004. Because of
our size, we do not have an audit committee, compensation committee or
nominating commitee.

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.

      The following Summary Compensation Table sets forth the compensation
earned by the Company's Chief Executive Officer and the other most highly
compensated executive officer(s) who were serving as such as of December 31,
2003, whose aggregate compensation for the 2003 fiscal year exceeded $100,000
for services rendered in all capacity for that fiscal year.

<TABLE>
<CAPTION>
                                                     ANNUAL COMPENSATION                       LONG-TERM COMPENSATION
                                               -------------------------------  ----------------------------------------------------
                                                                                          AWARDS                      PAYOUTS
                                                                                ----------------------------   ---------------------
                                                                                                  SECURITIES
                                                                      OTHER        RESTRICTED     UNDERLYING
                                                                     ANNUAL      STOCK AWARD(S)   OPTIONS/      LTIP     ALL OTHER
      NAME AND                                  SALARY     BONUS   COMPENSATION        ($)           SARS      PAYOUTS    COMPEN-
 PRINCIPAL POSITION                   YEAR       ($)        ($)        ($)             (F)            (#)         ($)     SATION ($)
         (A)                          (B)        (C)        (D)        (E)              S             (G)         (H)       (I)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>      <C>             <C>        <C>          <C>         <C>           <C>       <C>
David Duquette, Chairman of the
 Board, President                     2002     $ 193,800        --         --            --            --            --      --

David Duquette, Chairman of the
  Board, President and Director       2003     $ 127,200        --         --            --         400,000          --      --
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       17
<PAGE>

<TABLE>
<CAPTION>

OPTIONS/SAR GRANTS IN FISCAL YEAR 2003
----------------------------------------------------------------------------------------------------------------
                                     Number of          Percent of total
                                     securities           options/SARs
                                     underlying            granted to
                                     options/SARs      employees in fiscal   Exercise or base
       Name                          granted (#)               year           price ($/Share)    Expiration date
----------------------------------------------------------------------------------------------------------------
<S>                                   <C>                       <C>              <C>              <C>  <C>
David Duquette, CEO                   400,000                   30%              $0.25            9/12/08
Josef Czikmantori, Director           150,000                   11%              $0.25            9/12/08
----------------------------------------------------------------------------------------------------------------
</TABLE>



AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning exercises of stock options
during the year ended December 31, 2003, by each of the Named Executive Officers
and the value of in-the-money unexercised options at December 31, 2003.

<TABLE>
<CAPTION>

                       SHARES
                      ACQUIRED ON    VALUE          NUMBER OF SECURITIES
                       EXERCISE     REALIZED        UNDERLYING UNEXERCISED          VALUE OF UNEXERCISED IN-THE
 NAME                   (#)        ($) (1)      OPTIONS AT FISCAL YEAR END        MONEY OPTIONS AT FISCAL YEAR END
-------------------------------------------------------------------------------------------------------------------
                                                 EXERCISABLE/UNEXERCISABLE (#)   EXERCISABLE/UNEXERCISABLE ($) (2)
-------------------------------------------------------------------------------------------------------------------
<S>                   <C>       <C>      <C>              <C>       <C>                    <C>       <C>
David Duquette, CEO   400,000 / 0        $0.00            400,000 / 0                      260,000 / 0
Josef Czikmantori,    150,000 / 0        $0.00            150,000 / 0                       97,500 / 0
Director
</TABLE>

(1)   Value realized is based on estimated fair market value of Common Stock on
      the date of exercise minus the exercise price.

(2)   Value is based on estimated fair market value of Common Stock as of
      December 31, 2003 ($0.65) minus the exercise price.

None of our Named Executive Officers exercised any of their options during 2003.

LONG-TERM INCENTIVE PLANS

As of December 31, 2003 there is no long-term incentive plan.


                                       18
<PAGE>

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, 2003 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
whose compensation exceeded $100,000 in the fiscal year ended December 31, 2003;
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 OF
NAME OF BENEFICIAL OWNER                          NO. OF SHARES  OWNERSHIP (I)
------------------------                          -------------  -------------
David Duquette  (1)                                 1,433,334       20%
Josef Czikmantori (2)                                 650,000        9%

Officers and Directors as a Group (2 persons)       2,083,334       30%

5% or More Beneficial Ownership

Bastion Capital Fund L.P. (3)                         417,524        5%

     Based on 6,895,265 shares outstanding. Common stock subject to options or
     warrants that are currently exercisable or exercisable within 60 days of
     December 31, 2003 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).

(3)   Includes warrants to purchase 100,000 shares.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

NOTES RECEIVABLE FROM STOCKHOLDERS

As of December 31, 2003, the Company had loans to two stockholders approximating
$466,000, including accrued interest. The loans accrue interest at 5% 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 the years ended December 31,
2003 and 2002, total interest income from notes receivable from stockholders'
approximated $20,000 and $22,000, respectively.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.


                                       19
<PAGE>

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   ertificate of Incorporation as filed with the Delaware Secretary of State,
      as amended. ncorporated by reference to Exhibit 2.1 to Company's
      Registration Statement on Form C-18, filed on August 14, 1980. I S


3.2   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.

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.

31.2  ertification required by Rule 13a-14(a) or rule 15d-14(d) and under
      Section 906 of the arbanes-Oxley act of 2002. C S [GRAPHIC OMITTED]

(b) Reports on Form 8-K

      Form 8-K filed January 6, 2003 regarding Item 4. Changes in Registrant's
certifying accountant.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for professional services rendered by Squar,
Milner, Reehl & Williamson LLP ("Squar Milner") for the annual audit of our
consolidated financial statements as of and for the years ended December 31,
2003, and 2002 and fees billed for other services rendered by Squar Milner
during such years:

For the Years Ended December 31,

                               2003                2002
                             -------             -------

Audit Fees                   $54,000             $54,000
Audit Related Fees                -                   -
Tax Fees                      $7,500              $7,500
All Other Fees               $27,000(1)               -
                             ---------------------------
                              $88,500            $61,500
                             ---------------------------

(1)   Such billings were in connection with Form SB-2, which was not filed
      during the year ended December 31, 2003.

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 audit and permitted non-audit services to
be performed for us by our independent auditor.


                                       20
<PAGE>

                                   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:  April 14, 2004                   NEW CENTURY COMPANIES, INC.

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

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

Date:  April 14, 2004                   /s/    DAVID DUQUETTE
                                        ----------------------------------------
                                         Name:  David Duquette
                                         Title: Chairman, President and Director

Date: April 14, 2004                      /s/    JOSEF CZIKMANTORI
                                        ----------------------------------------
                                         Name:    Josef Czikmantori
                                        Title:    Secretary and Director


                                       21
<PAGE>

================================================================================

                           NEW CENTURY COMPANIES, INC.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2003


================================================================================

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Independent Auditors' Report.............................................F-1

Consolidated Balance Sheet...............................................F-2

Consolidated Statements of Operations....................................F-3

Consolidated Statements of Stockholders' Equity (Deficit)................F-4

Consolidated Statements of Cash Flows....................................F-5

Notes to Consolidated Financial Statements...............................F-7



<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
New Century Companies, Inc. and Subsidiary

We have audited the accompanying balance sheet of New Century Companies, Inc.
and Subsidiary (the "Company") as of December 31, 2003, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the two years in the period ended December 31, 2003. 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 auditing standards generally accepted
in the United States of America. 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. 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 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, 2003, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 2003
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 negative working capital of
approximately $2,695,000, an accumulated deficit of approximately $5,680,000,
recurring losses from operations and is in default on certain notes payable.
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, REEHL & WILLIAMSON, LLP

March 19, 2004
Newport Beach, California


                                      F-1
<PAGE>

<TABLE>
<CAPTION>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2003

                                                                         ASSETS


Current Assets
<S>        <C>                                                              <C>
            Cash                                                              $   155,969
            Contracts receivable                                                  150,451
            Inventories                                                         1,156,943
            Costs in excess of billings on uncompleted contracts                  320,532
            Prepaid expenses and other current assets                              25,691
                                                                              -----------

                 Total current assets                                           1,809,586

PROPERTY AND EQUIPMENT, NET                                                       605,857
                                                                              -----------

                                                                              $ 2,415,443
                                                                              ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
            Bank overdraft                                                    $   124,558
            Accounts payable and accrued expenses                               2,322,685
            Dividends payable                                                     195,000
            Billings in excess of costs on uncompleted contracts                  567,614
            Notes payable                                                       1,215,000
            Current portion of obligations under capital lease                     79,575
                                                                              -----------

                 Total current liabilities                                      4,504,432

OBLIGATIONS UNDER CAPITAL LEASE, NET OF CURRENT PORTION                            67,074
                                                                              -----------

TOTAL LIABILITIES                                                               4,571,506
                                                                              -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
            Cumulative, convertible, Series B preferred stock, $1 par value
            15,000,000 shares authorized, no shares issued and outstanding             --
            Cumulative, convertible, Series C preferred stock, $1 par value
            75,000 shares authorized, 63,600 shares issued and outstanding
            (liquidation preference of $1,785,000)                                 63,600
            Common stock, $0.10 par value, 50,000,000 shares authorized;
              6,895,265 shares issued and outstanding                             689,527
            Subscriptions receivable                                             (462,500)
            Notes receivable from stockholders                                   (466,159)
            Deferred consulting fees                                             (109,813)
            Additional paid-in capital                                          3,809,194
            Accumulated deficit                                                (5,679,912)
                                                                              -----------

            Total stockholders' deficit                                        (2,156,063)
                                                                              -----------
                                                                              $ 2,415,443
                                                                              ===========

</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-2
<PAGE>


                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For the Years Ended December 31, 2003 and 2002


                                          2003          2002
                                      -----------    -----------

NET SALES                             $ 6,908,087    $ 9,054,146

COST OF SALES                           7,575,744      7,273,339
                                      -----------    -----------

GROSS (LOSS) PROFIT                      (667,657)     1,780,807
                                      -----------    -----------


Consulting and other compensation         490,783      1,554,258
Salaries and related                      290,396        397,295
Selling, general and administrative     1,223,242        990,013
                                      -----------    -----------
TOTAL OPERATING EXPENSES                2,004,421      2,941,566
                                      -----------    -----------

                                       (2,672,078)    (1,160,759)
                                      -----------    -----------


Interest expense                         (295,338)      (610,675)
Interest income                            32,267         27,803
                                      -----------    -----------
TOTAL OTHER (EXPENSE) INCOME             (263,071)      (582,872)
                                      -----------    -----------


LOSS BEFORE PROVISION FOR
INCOME TAXES                           (2,935,149)    (1,743,631)

PROVISION FOR INCOME TAXES                  2,467         16,970
                                      -----------   ------------
NET LOSS                              $(2,937,616)  $ (1,760,601)

NET LOSS APPLICABLE TO
 COMMON STOCKHOLDERS                  $(3,074,866)  $ (2,126,380)
                                      ===========   ============
BASIC AND DILUTED NET
 LOSS AVAILABLE TO COMMON
 STOCKHOLDERS
 PER COMMON SHARE                         $ (0.42)       $ (0.40)

BASIC AND DILUTED WEIGHTED
 AVERAGE COMMON SHARES outstanding      7,355,214      5,290,154
                                     ============   ============

        See accompanying notes to the consolidated financial statements.

                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                 For the Years Ended December 31, 2003 and 2002


                                                                          SHARES ISSUABLE ON
                                                                        CONVERSION OF PREFERRED
                                                                            STOCK, SERIES B          PREFERRED STOCK, SERIES C
                                                                       --------------------------    -------------------------

                                                                         SHARES         AMOUNT         SHARES         AMOUNT
                                                                       -----------    -----------    -----------    -----------

<S>              <C>                                         <C>           <C>       <C>                 <C>       <C>
Balance, January 1, 2002                                                    95,023    $    56,900             --    $        --

Reclassification of shares issuable on conversion of Series B              (95,023)       (56,900)            --             --
Issuance of common stock for subscriptions receivable                           --             --             --             --
Isssuance of common stock for services rendered                                 --             --             --             --
Amortization of deferred consulting fees                                        --             --             --             --
Stock options issued for services                                               --             --             --             --
Reclassification of loan to stockholder                                         --             --             --             --
Issuance of common stock for bridge loan                                        --             --             --             --
Issuance of common stock for notes payable                                      --             --             --             --
Forgiveness of subscription receivable                                          --             --             --             --
Issuance of preferred stock for cash, net of commissions
and offering costs of $143,395                                                  --             --         44,000         44,000
Deemed dividend on convertible Series C                                         --             --             --             --
Issuance of preferred stock in connection with private
placement memorandum                                                            --             --          2,200          2,200
Issuance of common stock in connection with private
placement memorandum                                                            --             --             --             --
Accumulated dividends on preferred stock                                        --             --             --             --
Net loss                                                                        --             --             --             --
                                                                       -----------    -----------    -----------    -----------
Balance, December 31, 2002                                                      --             --         46,200         46,200

Isssuance of common stock for services rendered                                 --             --             --             --
Isssuance of common stock  and preferred stock for services rendered            --             --         31,800         31,800
Amortization of deferred consulting fees                                        --             --             --             --
Warrants issued in connection with notes payable                                --             --             --             --
Reclassification of loan to stockholder                                         --             --             --             --
Issuance of common stock as penalty for non-registration                        --             --             --             --
Issuance of common stock related to reconciliation to reverse merger            --             --             --             --
Issuance of common stock in connection with the conversion
of preferred stock                                                              --             --        (14,400)       (14,400)
Accumulated dividends on preferred stock                                        --             --             --             --
Net loss                                                                        --             --             --             --
                                                                       -----------    -----------    -----------    -----------
Balance, December 31, 2003                                                      --    $        --         63,600    $    63,600
                                                                       ===========    ===========    ===========    ===========



                                                               COMMON STOCK
                                                         -------------------------                  ADDITIONAL
                                                                                      TREASURY        PAID IN        LOANS TO
                                                            SHARES       AMOUNT        STOCK          CAPITAL      SHAREHOLDERS
                                                         -----------   -----------   -----------    -----------    -----------
Balance, January 1, 2002                                   4,940,527   $   494,053   $    (7,750)   $ 1,410,927    $  (433,345)

Reclassification of shares
 issuable on conversion of Series B                           95,023         9,502            --         47,398             --
Issuance of common stock
  for subscriptions receivable                               250,000        25,000            --        350,000             --
Isssuance of common stock for services rendered              170,000        17,000         7,750        250,666             --
Amortization of deferred consulting fees                          --            --            --             --             --
Stock options issued for services                                 --            --            --         68,000             --
Reclassification of loan to stockholder                           --            --            --             --        433,345
Issuance of common stock for bridge loan                     190,000        19,000            --        130,349             --
Issuance of common stock for notes payable                    85,000         8,500            --        115,442             --
Forgiveness of subscription receivable                            --            --            --             --             --
Issuance of preferred stock for cash, net of commissions
and offering costs of $143,395                                    --            --            --        912,605             --
Deemed dividend on convertible Series C                           --            --            --        308,029             --
Issuance of preferred stock in connection with private
placement memorandum                                              --            --            --         (2,200)            --
Issuance of common stock in connection with private
placement memorandum                                          40,000         4,000            --         (4,000)            --
Accumulated dividends on preferred stock                          --            --            --             --             --
Net loss                                                          --            --            --             --             --
                                                         -----------   -----------   -----------    -----------    -----------
Balance, December 31, 2002                                 5,770,550       577,055            --      3,587,216             --

Isssuance of common stock for services rendered              400,000        40,000            --         95,000             --
Isssuance of common stock
 and preferred stock for services rendered                   319,989        31,999            --        114,701             --
Amortization of deferred consulting fees                          --            --            --             --             --
Warrants issued in connection with notes payable                  --            --            --         17,350             --
Reclassification of loan to stockholder                           --            --            --             --       (466,159)
Issuance of common stock
 as penalty for non-registration                             100,000        10,000            --         11,000             --
Issuance of common stock related
 to reconciliation to reverse merger                          64,720         6,472            --         (6,472)            --
Issuance of common stock
 in connection with the conversion
 of preferred stock                                          240,006        24,001            --         (9,601)            --
Accumulated dividends on preferred stock                          --            --            --             --             --
Net loss                                                          --            --            --             --             --
                                                         -----------   -----------   -----------    -----------    -----------
Balance, December 31, 2003                                 6,895,265   $   689,527   $        --    $ 3,809,194    $  (466,159)
                                                         ===========   ===========   ===========    ===========    ===========

                                                                                                                      TOTAL
                                                                                                                   STOCKHOLDERS'
                                                                       DEFERRED      SUBSCRIPTIONS  (ACCUMULATED     (DEFICIT
                                                                    CONSULTING FEES   RECEIVABLE      DEFICIT)        EQUITY)
                                                                       -----------    -----------    -----------    -----------
Balance, January 1, 2002                                               $  (155,031)   $(1,087,500)   $  (478,666)   $  (200,412)

Reclassification of shares issuable on conversion of Series B                   --             --             --             --
Issuance of common stock for subscriptions receivable                           --       (375,000)            --             --
Isssuance of common stock for services rendered                           (216,000)            --             --         59,416
Amortization of deferred consulting fees                                   315,198             --             --        315,198
Stock options issued for services                                               --             --             --         68,000
Reclassification of loan to stockholder                                         --             --             --        433,345
Issuance of common stock for bridge loan                                        --             --             --        149,349
Issuance of common stock for notes payable                                      --             --             --        123,942
Forgiveness of subscription receivable                                          --      1,000,000             --      1,000,000
Issuance of preferred stock for cash, net of commissions
and offering costs of $143,395                                                  --             --             --        956,605
Deemed dividend on convertible Series C                                         --             --       (308,029)            --
Issuance of preferred stock in connection with private
placement memorandum                                                            --             --             --             --
Issuance of common stock in connection with private
placement memorandum                                                            --             --             --             --
Accumulated dividends on preferred stock                                        --             --        (57,750)       (57,750)
Net loss                                                                        --             --     (1,760,601)    (1,760,601)
                                                                       -----------    -----------    -----------    -----------
Balance, December 31, 2002                                                 (55,833)      (462,500)    (2,605,046)     1,087,092

Isssuance of common stock for services rendered                            (35,438)            --             --         99,562
Isssuance of common stock  and preferred stock for services rendered       (74,375)            --             --        104,125
Amortization of deferred consulting fees                                    55,833             --             --         55,833
Warrants issued in connection with notes payable                                --             --             --         17,350
Reclassification of loan to stockholder                                         --             --             --       (466,159)
Issuance of common stock as penalty for non-registration                        --             --             --         21,000
Issuance of common stock related to reconciliation to reverse merger            --             --             --             --
Issuance of common stock in connection with the conversion
of preferred stock                                                              --             --             --             --
Accumulated dividends on preferred stock                                        --             --       (137,250)      (137,250)
Net loss                                                                        --             --     (2,937,616)    (2,937,616)
                                                                       -----------    -----------    -----------    -----------
Balance, December 31, 2003                                             $  (109,813)   $  (462,500)   $(5,679,912)   $(2,156,063)
                                                                       ===========    ===========    ===========    ===========

</TABLE>

        See accompanying notes to the consolidated financial statements.

                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                                                         2003          2002
                                                                                     -----------    -----------
Cash flows from operating activities:
<S>                                                                                  <C>            <C>
          Net loss                                                                   $(2,937,616)   $(1,760,601)
          Adjustments to reconcile net loss to net cash
          provided by (used in) operating activities:
                  Depreciation and amortization of property and equipment                294,481        262,068
                  Amortization of consulting fees from prior year                         55,833        315,198
                  Amortization of debt discount on notes payable                              --         96,000
                  Forgiveness of subscriptions receivable as compensation                     --      1,000,000
                  Estimated fair market value of preferred and common stock
                          issued for consulting services                                 203,687         59,416
                  Estimated fair market value of common stock issued in connection
                          with the deferral of the maurity of notes payable               21,000        379,291
                  Estimated fair market value of warrants issued in connection
                          with notes payable                                              17,350         68,000
                  Interest income                                                        (19,765)            --
                  Loss on disposal of fixed assets                                        34,046             --
                  Loss of lease deposit                                                  465,000             --
                  Changes in operating assets and liabilities:
                          Contracts receivable                                           941,729       (786,004)
                          Inventories                                                    563,111       (526,850)
                          Costs in excess of billings on uncompleted contracts            33,081       (247,059)
                          Prepaid expenses and other current assets                       17,106         13,228
                          Accounts payable and accrued expenses                          347,990        561,837
                          Billings in excess of costs on uncompleted contracts           508,290       (862,260)
                                                                                     -----------    -----------

          Net cash provided by (used in) operating activities                            545,323     (1,427,736)
                                                                                     -----------    -----------

Cash flows from investing activities:
          Purchases of property and equipment                                            (10,407)      (285,180)
          Principal payments on notes receivable from stockholders                            --         38,036
                                                                                     -----------    -----------

          Net cash used in investing activities                                          (10,407)      (247,144)
                                                                                     -----------    -----------

Cash flows from financing activities:
          Bank overdraft                                                                  34,261          2,218
          Proceeds from the issuance of notes payable                                    500,000      1,295,500
          Principal repayments on notes payable                                         (900,000)      (488,513)
          Principal repayments on obligations under capital lease                        (93,484)       (54,418)
          Issuance of preferred stock, net of commissions
                  and offering costs of $143,395                                              --        956,605
                                                                                     -----------    -----------

          Net cash provided by (used in) financing activities                           (459,223)     1,711,392
                                                                                     -----------    -----------

Net increase in cash                                                                      75,693         36,512

Cash at beginning of year                                                                 80,276         43,764
                                                                                     -----------    -----------

Cash at end of year                                                                  $   155,969    $    80,276
                                                                                     ===========    ===========
Supplemental disclosure of cash flow information -
  Cash paid during the year for:
                  Interest                                                           $        --    $   100,471
                                                                                     ===========    ===========
                  Income taxes                                                       $        --    $    16,970
                                                                                     ===========    ===========

</TABLE>
See accompanying notes to the consolidated financial statements


                                      F-5
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND 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 provides after-market services, including rebuilding,
retrofitting and remanufacturing of metal cutting machinery.

The Company currently sells its services by direct sales and through a network
of machinery dealers across the United States. Its customers are generally
medium to large sized manufacturing companies in various industries where metal
cutting is an integral part of their businesses. The Company grants credit to
its customers who are predominately located in the western United States.

The Company trades on the Over-the-Counter Bulletin Board under the symbol
"NCNC."

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 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. As of December 31, 2003, the Company has negative working
capital of approximately $2,695,000, an accumulated deficit of approximately
$5,680,000, recurring losses from operations and is in default on certain notes
payable. 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 increased sales and debt and equity financing arrangements
which management believes may be insufficient to fund its capital expenditures,
working capital and other cash requirements for the fiscal year ending December
31, 2004. 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:

      o     The Company continues its aggressive program for selling inventory.
      o     The Company continues to implement plans to further reduce operating
            costs.
      o     The Company is seeking investment capital through the public
            markets.
      o     The Company has secured approximately $2,500,000 of new orders from
            January 2004 through March 2004.


                                      F-6
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

GOING CONCERN (continued)

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

CONCENTRATIONS OF CREDIT RISKS

Cash is maintained at various financial institutions. The Federal Deposit
Insurance Corporation ("FDIC") insures accounts at each institution for up to
$100,000. At times, cash may be in excess of the FDIC insurance limit of
$100,000. The Company did not exceed this limit at December 31, 2003.

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 contracts 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 is limited.

During the year ended December 31, 2003, sales to 3 customers approximated 45%
of net sales. During the year ended December 31, 2002, sales to one customer
represented 33% of net sales. As of December 31, 2003, 2 customers approximated
71% of contracts receivable.

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.

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 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 period. Significant 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 materially differ from those
estimates.


                                      F-7
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

Such 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, 2003, management has established an allowance
approximating $300,000.

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 of
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 accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in the consolidated statement of
operations.

LONG-LIVED ASSETS

Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which supercedes SFAS 121, addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. SFAS 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. If
the cost basis of a long-lived asset is greater than the projected future
undiscounted net cash flows from such asset (excluding interest), an impairment
loss is recognized. Impairment losses are calculated as the difference between
the cost basis of an asset and its estimated fair value. SFAS 144 also requires
companies to separately report discontinued operations and extends that
reporting to a component of an entity that either has been disposed of (by
sales, abandonment or in a distribution to owners) or is classified as held for
sale. Assets to be disposed are reported at the lower of the carrying amount or
fair value less costs to sell. The provisions of this statement for assets held
for sale or other disposal generally are required to be applied prospectively
after the adoption date to newly initiated commitments to plan to sell such
assets, as defined, by management. As a result, management cannot determine the
potential effects that adoption of SFAS 144 will have on the financial
statements with respect to future disposal decisions, if any. At December 31,
2003, management has determined that no such review for impairment was required
and therefore, no adjustments have been made to the carrying values of
long-lived assets. There can be no assurance, however, that market conditions
will not change or demand for the Company's products or services will increase,
which could result in impairment of long-lived assets.


                                      F-8
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

The Securities and Exchange Commission issued Staff Accounting Bulletin 101
("SAB 101"), "Revenue Recognition," 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. The Company recognizes revenue of long-term contracts
pursuant to SOP 81-1 (see below) for services.

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.

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.


                                      F-9
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS (continued)

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.
As of December 31, 2003, warranty reserve approximated $45,000, which is
recorded under accounts payable and accrued expenses in the accompanying
consolidated balance sheet.

ADVERTISING

The Company expenses the cost of advertising when incurred as selling expense in
the accompanying consolidated statements of operations. Advertising expenses
were approximately $64,000 and $100,000 for the years ended December 31, 2003
and 2002, respectively.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

INCOME TAXES

Under SFAS 109, "Accounting for Income Taxes," deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the consolidated financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. A valuation allowance is provided for significant
deferred tax assets when it is more likely than not that such assets will not be
recovered.

BASIC AND DILUTED LOSS PER COMMON SHARE

Under SFAS 128, "Earnings Per Share," basic earnings per common share is
computed by dividing income 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 940,000 and 100,000
additional potential common shares of December 31, 2003 and 2002, respectively).
Because the Company has incurred net losses, basic and diluted loss per share
are the same as additional potential common shares would be anti-dilutive (see
Note 8).

                                      F-10
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

COMPREHENSIVE INCOME

SFAS 130, "Reporting Comprehensive Income," establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. For the years ended December 31, 2003 and
2002, the Company had no items of comprehensive income.

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, as disclosed in the
accompanying consolidated statements of operations.

STOCK BASED COMPENSATION

The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock issued to Employees." Under the
intrinsic value based method, compensation expense is the excess, if any, of the
fair value of the stock at the grant date or other measurement date over the
amount an employee must pay to acquire the stock. Compensation expense, if any,
is recognized over the applicable service period, which is usually the vesting
period.

SFAS 123, "Accounting for Stock-Based Compensation," if fully adopted, changes
the method of accounting for employee stock-based compensation plans to the fair
value based method. For stock options and warrants, fair value is determined
using an option pricing model that takes into account the stock price at the
grant date, the exercise price, the expected life of the option or warrant,
stock volatility and the annual rate of quarterly dividends. Compensation
expense, if any, is recognized over the applicable service period, which is
usually the vesting period.

The adoption of the accounting methodology of SFAS 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB 25; however, pro forma disclosures, as the Company
adopted the cost recognition requirement under SFAS 123, are required to be
presented (see below). For stock-based compensation issued to non-employees, the
Company uses the fair value method of accounting under the provisions of SFAS
123.


                                      F-11
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

STOCK BASED COMPENSATION (continued)

FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of APB 25" clarifies the
application of APB 25 for (a) the definition of employee for purpose of applying
APB 25, (b) the criteria for determining whether a plan qualifies as a non
compensatory plan, (c) the accounting consequence for various modifications to
the terms of a previously fixed stock option or award and (d) the accounting for
an exchange of stock compensation
awards in a business combination. Management believes that the Company accounts
for transactions involving stock compensation in accordance with FIN 44.

SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,
an amendment of FASB Statement No. 123," provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.

At December 31, 2003, the Company has one stock-based employee compensation plan
and one stock-based non-employee compensation plan, which are described more
fully in 7. The Company accounts for the employee compensation plan under the
recognition and measurement principles of APB 25, and related interpretation.
The Company accounts for the non-employee compensation plan under the
recognition measurement principles of SFAS 123. There was no employee
stock-based compensation cost recognized in net loss for fiscal years 2003 and
2002, respectively. The following table illustrates the effect on net loss and
loss per common share if the Company had applied the fair value recognition
provisions of SFAS 123 to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                  2003                2002
                                                              -------------       -------------
Net loss applicable to common stockholders:
<S>                                                           <C>                                <C>
      As reported                                             $  3,074,866       $    2,126,380
      Deduct: Total stock-based employee compensation
         expense determined under fair value
         based method for all awards                              (247,000)                    -
                                                                ----------          -----------
      Pro forma                                               $  3,321,866       $    2,126,380
                                                                ==========          ===========

Basic and diluted net loss per share:
      As reported                                             $     (0.42)       $       (0.40)
                                                                ==========          ===========
      Pro forma                                               $     (0.45)       $       (0.40)
                                                                ==========          ===========
</TABLE>


                                      F-12
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

STOCK BASED COMPENSATION (continued)

The above pro forma effects of applying SFAS 123 are not necessarily
representative of the impact on reported net loss for future years.

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,
contract receivables, inventories, trade payables, accrued expenses, obligations
under capital lease, and notes payable approximates their estimated fair values
due to the short-term maturities of those financial instruments and 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

SFAS 146, "Accounting for Costs Associated with Exit and Disposal Activities,"
was issued in June 2002 and is effective for exit and disposal activities
initiated after December 31, 2002. The Company did not have any such activities
during fiscal year 2003.

In November 2002, the Financial Accounting Standards Board (the "FASB") issued
FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and measurement
provisions of FIN No. 45 are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002, while the disclosure requirements
became applicable in 2002. The Company is complying with the disclosure
requirements of FIN No. 45. The other requirements of this pronouncement did not
materially affect the Company's financial statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB 51." The primary objectives of FIN No. 46 are
to provide guidance on the identification of entities for which control is
achieved through means other than voting rights (variable interest entities or
"VIEs") and how to determine when and which business enterprise should
consolidate the VIE. This new model for consolidation applies to an entity for
which either: (1) the equity investors do not have a controlling financial
interest; or (2) the equity investment at risk is insufficient to finance that
entity's activities without receiving additional subordinated financial support
from other parties. In addition, FIN No. 46 requires that both the primary
beneficiary and all other enterprises with a



                                      F-13
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS (continued)

significant variable interest in a VIE make additional disclosures. As amended
in December 2003, the effective dates of FIN No. 46 for public entities that are
small business issuers, as defined ("SBIs"), are as follows: (a) For interests
in special-purpose entities: Periods ended after December 15, 2003; and (b) For
all other VIEs: periods ending after December 15, 2004. The December 2003
amendment of FIN No. 46 also includes transition provisions that govern how an
SBI which previously adopted the pronouncement (as it was originally issued)
must account for consolidated VIEs. The Company is evaluating the effects of FIN
No. 46 (as amended) on its financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133. This pronouncement is effective for contracts entered into
or modified after June 30, 2003 (with certain exceptions), and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the Company's financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and
is effective for public companies as follows: (i) in November 2003, the FASB
issued FASB Staff Position ("FSP") FAS 150-03 ("FSP 150-3"), which defers
indefinitely (a) the measurement and classification guidance of SFAS No. 150 for
all mandatorily redeemable non-controlling interests in (and issued by)
limited-life consolidated subsidiaries, and (b) SFAS No. 150's measurement
guidance for other types of mandatorily redeemable non-controlling interests,
provided they were created before November 5, 2003; (ii) for financial
instruments entered into or modified after May 31, 2003 that are outside the
scope of FSP 150-3; and (iii) otherwise, at the beginning of the first interim
period beginning after June 15, 2003. The Company adopted SFAS No. 150 on the
aforementioned effective dates. The adoption of this pronouncement did not have
a material impact on the Company's financial statements.

Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not
believed by management to have a material impact on the Company's present or
future consolidated financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to the 2002 consolidated financial
statements to conform to the 2003 presentation.


                                      F-14
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

2. CONTRACTS IN PROGRESS

Contracts in progress as of December 31, 2003 approximate:

 Cumulative costs to date                                          $ 3,772,000
 Cumulative gross profit to date                                     2,451,000
                                                                   -----------

 Cumulative revenue earned                                           6,223,000

 Less progress billings to date                                     (6,470,000)
                                                                   -----------
                                                                   -----------

        Net over billings                                          $  (247,000)
                                                                   ===========

The following approximate amounts are included in
 the accompanying consolidated balance sheet
 under these captions as of December 31, 2003:


 Costs in excess of billings on uncompleted contracts              $   321,000

 Billings in excess of costs on uncompleted contracts                 (568,000)
                                                                   -----------

        Net over billings                                          $  (247,000)
                                                                   ===========

3. PROPERTY AND EQUIPMENT

Property and equipment approximate
 the following at December 31, 2003:

 Machinery and equipment                                           $ 1,001,000
 Computer equipment                                                     22,000
 Capital lease equipment                                               360,000
 Leasehold improvements                                                123,000
                                                                   -----------
                                                                     1,506,000

 Less accumulated depreciation and amortization                       (900,000)
                                                                   -----------
                                                                   -----------

                                                                   $   606,000
                                                                   ===========

4. RELATED PARTY TRANSACTIONS

NOTES RECEIVABLE FROM STOCKHOLDERS

As of December 31, 2003, the Company had loans to two stockholders approximating
$466,000, including accrued interest. The loans accrue interest at 5% and are
due on demand. The Company has reclassified the notes receivable


                                      F-15
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

4. RELATED PARTY TRANSACTIONS (continued)

NOTES RECEIVABLE FROM STOCKHOLDERS (continued)

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 the years ended
December 31, 2003 and 2002, total interest income from notes receivable from
stockholders' approximated $20,000 and $22,000, respectively.

5. NOTES PAYABLE

During the year ended December 31, 2002, the Company entered into a bridge loan
in the amount of $241,500. The bridge loan had a stated interest rate of 6%, and
was paid in full during 2002. In addition, the Company issued to the note holder
190,000 shares of common stock valued at approximately $149,000 (estimated based
on the pro-rata market value on the date of grant) (See Note 7), which the
company has amortized to interest expense in the accompanying consolidated
statement of operations for the year ended December 31, 2002.

During the fiscal year ended December 31, 2002, the Company entered into a note
payable ("Note A") with a third party for $235,000 (net of a $15,000 debt
discount that was amortized to interest expense in the accompanying consolidated
statement of operations for the year ended December 31, 2002). Note A accrues
interest at a fixed rate of 8% per annum and matures in April 2003, as amended.
In addition, the Company issued the noteholder 10,000 shares of the Company's
restricted common stock valued at approximately $19,000 (estimated based on the
pro-rata market value on the date of grant) (see Note 7), which the Company has
amortized to interest expense in the accompanying consolidated statement of
operations for the year ended December 31, 2002. In connection with the amended
maturity date, the Company paid a penalty of $15,000 and issued a warrant to
purchase 5,000 shares of the Company's restricted common stock (see Note 7).
Note A is secured by certain assets of the Company, as defined. At December 31,
2003 and 2002, the total outstanding principal balance on Note A was $250,000.

During the year ended December 31, 2002, the Company entered into a note payable
("Note B") with a third party for $819,000 (net of a $81,000 debt discount that
was amortized to interest expense in the accompanying consolidated statement of
operations for the year ended December 31, 2002). Note B accrued interest at a
fixed rate of 8% per annum and matured in January 2003. In addition, the Company
issued to the noteholder 75,000 shares of the Company's restricted common stock
valued at approximately $105,000 (estimated based on the pro-rata market value
on the date of grant) (see Note 7), which the Company has amortized to interest
expense in the accompanying consolidated statement of operations as of December
31, 2002. Note B was secured by certain assets of the Company, as defined. At
December 31, 2002, the total outstanding principal balance on Note B was
$900,000, which was paid in full in January 2003.


                                      F-16
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

5. NOTES PAYABLE (continued)

During the year ended December 31, 2001, the Company entered into a note payable
("Note C") with a third party for $250,000. Note C accrues interest at a fixed
rate of 18% per annum and matured in December 2003, as amended. During the year
ended December 31, 2003, a note payable agreement with a third party in the
amount of $250,000 that was in default was extended until December 31, 2003.
Originally, the Company issued to the noteholder warrants to purchase 100,000
shares of the Company's restricted common stock at an exercise price of $2.00,
valued at $106,000 (based on the Black-Scholes option pricing model), which the
Company had amortized to interest expense during the year ended December 31,
2002. In connection with the amended maturity date, the Company effectively
cancelled the original 100,000 warrants and issued warrants to purchase 200,000
shares of common stock at an exercise price of $1.00, which vested upon grant
and expire in December 2003. As the pro-rata value of the 200,000 warrants
issued approximates the amounts expensed in 2002, no additional expense has been
recorded. Note C is personally guaranteed by a stockholder and is in default at
December 31, 2003. At December 31, 2003, the total outstanding principal balance
on Note C was $250,000.

During the year ended December 31, 2001, the Company entered into a note payable
("Note D") with a third party for $215,000. Note D accrues interest at a fixed
rate of 15% per annum and matured in March 2002. Note D is secured by certain
assets of the Company, as defined, and is in default at December 31, 2003. At
December 31, 2003, the total outstanding principal balance on Note D was
$215,000. In March 2004, the noteholder sued the Company demanding payment of
Note D (see Note 9).

In January 2003, the Company entered into a note payable agreement (the "Note")
with two individuals in the amount of $500,000 with an interest rate of 10% per
annum, which matured in April 2003 and is in default at December 31, 2003. The
note was issued with a discount of $45,000, which the Company amortized to
interest expense in the accompanying condensed consolidated statements of
operations. In connection with the Note, the Company issued warrants to purchase
25,000 shares of common stock (see Note 7).

6. INCOME TAXES

During fiscal 2003 and 2002, the provision for taxes (substantially all
deferred) 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:


                                      F-17
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003



6. INCOME TAXES (continued)

<TABLE>
<CAPTION>

                                                                                                      2003           2002
                                                                                                --------------   -------------

<S>                                                                                             <C>              <C>
Computed "expected" tax (benefit) expense                                                       $    (998,000)        (600,000)

Addition to (reduction) in income taxes resulting from:
      State income taxes, net of federal benefit                                                      (171,000)       (117,000)
      Change in deferred tax asset valuation allowance                                               1,140,000         696,100
      Non-deductible expenses                                                                           31,467          37,870
                                                                                                --------------   -------------

                                                                                                $        2,467          16,970
                                                                                                ==============   =============

The effects of temporary differences that give rise to significant portions of deferred tax
assets and liabilities at December 31, 2003 are presented below:

Deferred tax assets:
      Tax net operating loss carryforwards                                                                       $   1,961,000
      Accrued warranty reserve                                                                                          18,000
      Accrued compensation                                                                                              15,000
                                                                                                                 -------------

Total gross deferred tax asset                                                                                       1,994,000
Less valuation allowance                                                                                            (1,994,000)
                                                                                                                 --------------

Total net deferred tax asset                                                                                     $           -
                                                                                                                  ============
</TABLE>


The valuation allowance increased by $1,140,000 and $696,100 during the years
ended December 31, 2003 and 2002, respectively. The current provision for income
taxes for the years ended December 31, 2003 and 2002 is not significant and due
primarily to certain state taxes.

At December 31, 2003, the Company had net tax operating loss carryforwards of
approximately $5,105,000 and $2,553,000 available to offset future taxable
federal and state income, respectively. If not utilized to offset future taxable
income, the carryforwards will expire in various years through 2023. 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.


                                      F-18
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


7. 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 have
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, do not have any voting rights, and have liquidation preferences, as
defined. As of December 31, 2001, in accordance with the conversion terms of the
Series B, 95,023 shares of the common stock remained unissued and committed,
which the Company has reclassified to common stock during the year ended
December 31, 2002 because the stock had constructively been issued.

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 have 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, are convertible at anytime into
16.667 shares of the Company's common stock, do not have any voting rights, and
have liquidation preferences, as defined.

During the year ended December 31, 2002, the Company completed a Private
Placement Memorandum ("PPM") in which the Company offered to eligible investors,
as defined, a maximum of 60,000 shares of Series C, with a required minimum
offering of 30,000 shares of Series C to be sold at $25 per share. During fiscal
2002 and pursuant to the PPM, the Company sold 44,000 shares of Series C to
eligible investors for proceeds of $956,605 (net of commissions and offering
costs of $143,395). In addition, the Company issued 2,200 shares of Series C and
40,000 restricted shares of common stock (see below) to the placement agent for
services provided in connection with the PPM.

The Series C issued in fiscal 2002 was issued with a beneficial conversion
feature as the issuance date trading value of the Company's common stock was
greater than the conversion price. Accordingly, the Company has recorded a
deemed dividend to the Series C shareholders of $308,029. The deemed dividend is
reflected as an increase in the net loss available to common shareholders (see
Note 8). As of December 31, 2003, the Company had a total of $63,600 shares of
Series C issued and outstanding, with accumulated dividends totaling $195,000,
which is recorded in the accompanying consolidated balance sheet.

In September 2003, the Company issued 31,800 shares of series C, valued at
approximately $111,000 (based on the estimated fair market value on the date of
grant) to consultants for services to be rendered through March 2004. The
Company has expensed approximately $65,000 in the year ended December 31, 2003
related to such issuance.

During the year ended December 31, 2003, holders of the Company's Preferred C
converted 14,400 shares into 240,006 shares of common stock.



                                      F-19
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK

During the year ended December 31, 2001, the Company received an $87,500
subscription receivable 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, 2003, the subscription receivable
remains unpaid, but management expects full collection.

During the year ended December 31, 2001, the Company issued 71,250 restricted
shares of common stock to two consultants for services to be rendered valued at
$292,125 (estimated based on the market price on the date of grant) and
amortized over the term of the services, as specified in the related agreements.
During the year ended December 31, 2002, the Company amortized $155,031 to
consulting expense in the accompanying consolidated statements of operations.

During the year ended December 31, 2002, the Company issued 140,000 restricted
shares of common stock (including 7,750 shares of Treasury Stock) valued at
$216,000 (estimated based on the market price on the date of grant) to three
consulting firms for services to be rendered in relation to corporate finance
and investor relations for periods ranging from 3 months to one year. The
Company recorded the entire value of $216,000 to deferred consulting fees and is
amortizing the amount to consulting expense in the accompanying consolidated
statements of operations over the periods of service. For the years ended
December 31, 2003 and 2002, the Company amortized $160,167 and $55,833,
respectively, to consulting expense in the accompanying consolidated statements
of operations.

During the year ended December 31, 2002, the Company issued 30,000 restricted
shares of common stock valued at approximately $59,500 (estimated based on the
market price on the date of grant) to two legal firms for services rendered,
which the Company recorded to legal expense in the accompanying consolidated
statement of operations for the year ended December 31, 2002.

During the year ended December 31, 2002, the Company issued 275,000 restricted
shares of common stock valued at approximately $273,000 in connection with
various notes payable (See Note 5).

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, 2003. The Company is currently in
negations related to the outstanding principal balance. The related accrued
interest receivable and interest income are insignificant to the consolidated
financial statements.

During the year ended December 31, 2002, the Company issued 40,000 restricted
shares of common stock in connection with the PPM (see above). Since such costs
are related to equity fund raising, the transaction has no effect on the
Company's net equity as presented in the accompanying consolidated statements of
stockholders' equity (deficit).



                                      F-20
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

During the year ended December 31, 2003, the Company issued 719,918 shares of
restricted common stock valued at $202,500 (estimated based on the market price
on the date of grant) to consultants for services to be rendered through
September 2004. The Company recorded the entire value to deferred consulting
fees and is amortizing the amount to consulting expense over the periods of
service. As of December 31, 2003, the total unamortized consulting fees
approximated $64,000, which is recorded as an increase to stockholders deficit.

During the year ended December 31, 2003, the Company issued 100,000 shares of
restricted common stock to a shareholder as penalty for not registering shares
previously issued under Form SB-2 in a timely manner. The common stock was
valued at $21,000 (estimated based on the market price on the date of grant).

During the year ended December 31, 2003, the Company issued 64,720 shares of
restricted common stock in reconciliation with the reverse merger in 2001.

STOCK OPTIONS AND WARRANTS

Under the terms of the Company's Incentive Stock Option Plan ("ISOP"), options
to purchase an aggregate of 1,000,000 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.

In December 2001, the Company issued 100,000 warrants to purchase common stock
for $2 per share, which is exercisable for two years from the date of issuance.
The warrants were issued in connection with a six-month, short-term note payable
and cancelled during fiscal 2003. In accordance with accounting principles
generally accepted in the United States, the proceeds of the financing have been
allocated to the debt and the warrants, based on their relative fair values.
Accordingly, a discount of $106,000 has been recorded as a reduction in the debt
balance, and the off-setting credit has been recorded as additional paid-in
capital. The debt discount was amortized and charged to interest expense over
the life of the debt. Amortization of the debt discount is included in interest
expense in the accompanying consolidated statement of operations for the year
ended December 31, 2002. As part of an extension agreement, the Company
effectively cancelled the original 100,000 warrants and issued warrants to
purchase 200,000 shares of common stock at an exercise price of $1.00, which
vested upon grant and expire in December 2003. As the pro-rata value of the
200,000 warrants issued approximates he amounts expensed in 2002, no additional
expense has been recorded. Note C is personally guaranteed by a stockholder and
is in default at December 31, 2003.


                                      F-21
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


7. EQUITY TRANSACTIONS (continued)

STOCK OPTIONS AND WARRANTS (continued)

In September 2002, the Company granted 100,000 stock options to a third party
for services rendered valued at $68,000 (estimated based on the Black-Scholes
option pricing model pursuant to SFAS 123). The stock options had an exercise
price of $1.10, vested immediately and expired in September 2003.

During the year ended December 31, 2003, the Company granted a warrant to
purchase 25,000 shares of the Company's restricted common stock in connection
with the issuance of a note payable (see Note 5). The pro-rata value of the
warrant was $13,000 (estimated based on the Black-Scholes option pricing model
pursuant to SFAS 123). The warrant has an exercise price of $1.00, vests
immediately and is exercisable through January 2008.

During the year ended December 31, 2003, the Company granted a warrant to
purchase 5,000 shares of the Company's restricted common stock in connection
with the deferral of the maturity date of a note payable (see Note 5). The value
of the warrant was $4,500 (estimated based on the Black-Scholes option pricing
model pursuant to SFAS 123). The warrant has an exercise price of $1.25, vests
immediately and is exercisable through March 2008.

In September 2003, the Company granted options to purchase an aggregate of
1,300,000 shares of restricted common stock, at an exercise price of $0.25 per
share (the fair market value of the Company's common stock on the date of
grant), to various employees of the Company. The options vested immediately and
are exercisable through September 2008.


                                      F-22
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


7. EQUITY TRANSACTIONS (continued)

STOCK OPTIONS AND WARRANTS (continued)

The following is a status of the stock options and warrants outstanding at
December 31, 2003 and the changes during the two years then ended:

<TABLE>
<CAPTION>
                                                              Year Ended                           Year Ended
                                                             December 31,                          December 31,
                                                                2003                                 2002
                                                 -----------------------------------      -----------------------------
                                                                                                             Weighted
                                                 Options and          Weighted            Options and        Average
                                                 Warrants             Average Price       Warrants           Price
                                                 -------------        -------------       ------------       ----------

<S>                                                   <C>             <C>                   <C>                <C>
Outstanding, beginning of year                        741,583         $     8.06            641,583            $  9.15

Granted                                             1,530,000               0.36            100,000               1.10

Exercised                                                   -                  -

Cancelled/Terminated                                (450,000)              (5.06)                 -                  -
                                                 -------------        ----------          ---------          ---------

Outstanding and exercisable, end of year            1,821,583         $     2.34            741,583          $    8.06
                                                 =============        ==========          =========          =========

Weighted average fair value of options granted                        $     0.17                                 $0.68
                                                                      ==========                             =========
</TABLE>


The following table summarizes information related to stock options outstanding
at December 31, 2003:

                                  Options Outstanding
                  -----------------------------------------------------
                                   Weighted
                                   Average                    Weighted
                                  Remaining                    Average
                                 Contractual                  Exercise
Exercise Price        Number     Life (Years)                  Price
----------------- -----------------------------------------------------

     $0.25         1,300,000         4.7                          $0.25
 $1.00- $1.25        130,000         3.8                           1.09
 $5.00- $7.50         35,000         1.4                           7.01
 $9.80- $10.00       356,583         1.2                           9.96
                  ----------                                     ------

                   1,821,583                                      $2.34
----------------- -----------------------------------------------------


                                      F-23
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

7. EQUITY TRANSACTIONS (continue

STOCK OPTIONS (continued)

The following outlines the significant assumptions used to calculate the fair
market value information presented utilizing the Black-Scholes pricing model
during fiscal years 2003 and 2002:

                                  YEAR ENDED            YEAR ENDED
                              DECEMBER 31, 2003      DECEMBER 31, 2002
                             ------------------      -----------------

Discount rate                       2%- 3%                 3.50%

Volatility                           253%                  365%

Expected life                      4 years                4 years

Expected dividend yield               -                      -
                             ------------------      -----------------

8. 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, 2003 and 2002:
<TABLE>
<CAPTION>

                                                        2003                 2002
                                                  ------------------  ------------------

<S>                                               <C>                 <C>
Net loss                                          $   (2,937,616)     $   (1,760,601)

Cumulative preferred dividends (See Note 7)             (137,250)            (57,750)

Deemed dividends on preferred stock (See Note 7)                -           (308,029)
                                                  ------------------  ------------------

Numerator for basic and diluted loss per share:
     Net loss applicable to common stockholders       (3,074,866)         (2,126,380)

Denominator for basic and diluted loss per share:
     Weighted average shares                          7,355,214           5,290,154
                                                  ------------------  ------------------

Basic and diluted loss per share                  $        (0.42)     $        (0.40)
                                                  ==================  ==================
</TABLE>

9. 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 9. COMMITMENTS AND CONTINGENCIES (continued)


                                      F-24
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

SERVICE AGREEMENTS (continued)

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 equipment under various operating lease agreements which
require monthly payments ranging from approximately $250 to $600, and maturing
through July 2006.

The Company also leases its office and warehouse facility under a non-cancelable
operating lease agreement. The lease requires monthly lease payments of
approximately $31,000, with annual increases of 3% through December 2006. The
lease is personally guaranteed by one of the stockholders. The lease agreement
included a provision in which the Company could purchase the land and building
(the "Property") for $3,050,000 from the current landlord/owner, as amended.
During the year ended December 31, 2001, the Company entered into a note payable
with the prior landlord/owner of the Property in the amount of $215,000, as a
condition of sale of the Property to the current landlord/owner and as a deposit
toward the eventual purchase of the Property by the Company, then subsequently
deposited an additional $250,000 directly into escrow. The deposits totaling
$465,000 were non-refundable. In March 2003, a third party purchased the
Property. Therefore, as the Company has no legal claim for the deposits, such
amounts have been expensed in the accompanying condensed consolidated statements
of operations.

The Company was a sublessor in a sublease of an office and warehouse facility
under a non-cancelable operating sublease agreement which expired in August
2003. During fiscal years 2003 and 2002, in connection with the sublease, the
Company has recognized approximately $167,000 and $100,000 of rental income, of
which $148,000 and $84,000 represents the Company's obligation as the original
lessee, respectively. The aforementioned amounts have been included in operating
expenses in the accompanying consolidated statement of operations for the year
ended December 31, 2003 and 2002.

The Company leases certain equipment under capital lease obligations that expire
through December 2005. Monthly payments approximate $12,000, including interest
at rates ranging from 14% to 31%. The assets under capital leases are recorded
at the lower of the present value of the minimum lease payments or the fair
market value.


                                      F-25
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003


9. COMMITMENTS AND CONTINGENCIES (continued)

LEASES (continued)

Future minimum lease payments on the operating and capital lease obligations
(net of sublease income) for the years ending December 31 approximates:

<TABLE>
<CAPTION>

                                       Operating             Capital
                                        Leases               Leases               Total
                                    --------------        -------------        --------------
<C>                                      <C>                    <C>                 <C>
2004                                     385,000                96,000              481,000
2005                                     389,000                77,000              466,000
2006                                     396,000                     -              396,000
2007
                                    --------------        -------------        --------------

Total minimum lease payments        $  1,170,000          $    173,000         $  1,343,000
                                    ==============        =============        ==============

Less imputed interest                                     $      26,000
                                                          -------------
Present value of minimum lease
   payments                                                     147,000

Less current portion                                             80,000
                                                          -------------
Long-term portion                                         $      67,000
                                                          =============
</TABLE>

Rental expense for operating leases approximated $380,000 (net of approximately
$165,000 sublease rental income) and $365,000 (net of approximately $125,000
sublease rental income) for the years ended December 31, 2003 and 2002,
respectively. Interest expense incurred pursuant to capital lease obligations
approximated $25,000 and $21,000 for the years ended December 31, 2003 and 2002,
respectively.

Equipment under capital leases as of December 31, 2003, which is included in
property and equipment in the accompanying consolidated balance sheet (see Note
3) approximates:

 Machinery and equipment                    $    360,000
 Accumulated depreciation                       (156,000)
                                            ------------
                                            $    204,000
                                            ============


                                      F-26
<PAGE>

                   NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003



9. COMMITMENTS AND CONTINGENCIES (continued)

LEGAL

From time to time, the Company may be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations or discrimination or
breach of contract actions incidental in the normal operations of the business.
Except as described below, 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.

NEED DETAILS RELATED TO THE WEINER FAMILY TRUST LAWSUIT

BACKLOG (Unaudited)

The following schedule approximates a reconciliation of backlog representing
signed purchase orders.
<TABLE>
<CAPTION>

    <S>                    <C>                                                             <C>
      Balance, January 1, 2003                                                         $      1,200,000
      New contracts, January 1, 2003 through December 31, 2003
                                                                                              7,900,000
                                                                                       ----------------
                                                                                              9,100,000

      Less, contract revenue earned - January 1, 2003 through December 31, 2003
                                                                                            (6,908,000)
                                                                                       ----------------

      Balance December 31, 2003                                                        $      2,192,000
                                                                                       ================
</TABLE>


10. SUBSEQUENT EVENTS





                                      F-27
<PAGE>