**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, 2007**





OR





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


**ACT
      OF 1934.**





**FOR
      THE TRANSITION PERIOD FROM __________ TO____________**





*COMMISSION
      FILE NUMBER 000-09459*





**NEW
      CENTURY COMPANIES, INC.**





(NAME
      OF
      SMALL BUSINESS ISSUER IN ITS CHARTER)





DELAWARE
            
            0610345787(STATE
                OR OTHER JURISDICTION OF INCORPORATION)
            
            (I.R.S.
                EMPLOYER
              IDENTIFICATION
                NO.)9831
                ROMANDEL AVE.
              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:**





TITLE
                OF EACH CLASS
            
            NAME
                OF EACH EXCHANGE
              ON
                WHICH REGISTERED





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





**COMMON
      STOCK, PAR VALUE $0.10**


(TITLE
      OF
      CLASS)








Check
      whether the issuer is required to file reports pursuant to Section 13 or 15(d)
      of the Exchange Act.


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 o





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





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





The
      issuer's revenue for its most recent fiscal year was $10,048,309.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, on the average bid and ask price of such common equity on May 12, 2008
      was
      $0.14. As of May 12, 2008, there were 14,119,656 shares of common stock issued
      and outstanding.










NEW
      CENTURY COMPANIES, INC.


FORM
      10-KSB


INDEX





PAGEPART
                IItem
                1.
            Description
                of Business
            4Item
                1A.
            Risk
                Factors
            7Item
                2.
            Description
                of Property
            8Item
                3.
            Legal
                Proceedings
            9Item
                4.
            Submission
                of Matters To a Vote of Security Holders
            9PART
                IIItem
                5.
            Market
                for Company's Common Equity, Related Stockholder Matters, and Small
                Business Issuer Purchases of Equity Securities
            9Item
                6.
            Management's
                Discussion and Analysis or Plan of Operation
            15Item
                7.
            Financial
                Statements and Notes to the Consolidated Financial
                Statements
            19Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            19Item
                8A
            Disclosures
                Controls and Procedures
            19PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters, Control Persons, Corporate Governance;
                Compliance with Section 16(a) of The Exchange Act
            23Item
                10.
            Executive
                Compensation
            25Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            27Item
                12.
            Certain
                Relationships and Related Transactions
            27Item
                13.
            Exhibits
            28Item
                14.
            Principal
                Accountant Fees and Services
            29Signatures
            30Report
                of Independent Registered Public Accounting Firm
            F-1Financial
                Statements
            F-2Notes
                to the Consolidated Financial Statements
            F-6




3


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





On
      May
      25, 2001, the Company entered into a plan of Reorganization and Merger with
      New
      Century Remanufacturing, Inc., (“NCR”). Pursuant to the merger, all of the
      outstanding shares of NCR were exchanged for shares of the Company on a 1 to
      833.33 basis. The Company issued a total of 4,195,942 shares of common stock.
      Immediately after the merger, all then existing officers and directors of the
      Company resigned and the management of NCR was elected and appointed to such
      positions; thereby effecting a change of control. Although NCR became a
      wholly-owned subsidiary of the Company following the transaction, because the
      transaction resulted in a change of control, the transaction was recorded as
      a
      "reverse merger" whereby NCR was considered to be the accounting acquirer of
      the
      Company. After the reverse merger the Company changed its name to New Century
      Companies, Inc. The results of operations and the related financial statements
      are the results of operations for NCR.





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





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




4





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





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





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





**INDUSTRY
      OVERVIEW**





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





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





**CUSTOMERS**





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




**SUPPLIERS**





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





**MARKETING**





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





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





**BUSINESS
      STRATEGY AND MARKET DEVELOPMENT**





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




**SEASONALITY**





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


5




**COMPETITION**





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





**SOURCES
      AND AVAILABILITY OF RAW MATERIALS**





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





**RESEARCH
      AND DEVELOPMENT**





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





**PATENTS
      AND TRADEMARKS**





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





**EMPLOYEES**





At
      December 31, 2007, we had 40 full-time employees. The Company believes its
      relationships with its employees are good. The Company's employees are not
      represented by a collective bargaining organization and the Company has not
      experienced a work stoppage.





**ENVIRONMENTAL
      MATTERS**





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





**AVAILABLE
      INFORMATION**





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


6





****ITEM
      1A.** RISK FACTORS**





**Operating
      Results Fluctuate**





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





n
            adverse
                changes in the conditions in the specific markets for its products;





n
            visibility
                to, and the actual size and timing of, capital expenditures by its
                customers;





n
            inventory
                practices, including the timing of deployment, of its
                customers;





n
            adverse
                changes in the public and private equity and debt markets and the
                ability
                of its customers and suppliers to obtain financing or to fund capital
                expenditures;





n
            adverse
                changes in the credit ratings of its customers and
                suppliers;





n
            a
                general downturn in the overall
                economy;





n
            a
                decline in government defense funding that lowers the demand for
                defense
                equipment and retrofitting;





n
            competitive
                pricing and availability of competitive products;
                and





n
            adverse
                changes in the ability of the company to obtain financing or to fund
                capital expenditures, mergers and acquisitions or growth.





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





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





The
      Company will continue to rely upon external financing sources to meet the cash
      requirement of its ongoing operations. New Century is currently seeking
      additional capital in the form of equity or debt, or a combination thereof.
      However, there is no guarantee that it will raise sufficient capital to execute
      its business plan. To the extent that the Company is unable to raise sufficient
      capital, its business plan will require substantial modification and its
      operations curtailed. These conditions raise substantial doubt about New
      Century’s ability to continue as a going concern. The Company’s continuation as
      a going concern is dependent upon its ability to ultimately attain profitable
      operations, generate sufficient cash flow to meet its obligations, and obtain
      additional financing as may be required.





**Volatile
      Share Price**





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




7




**Seasonality**





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





**Competition**





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





**Product
      Liability And Warranty Claims**





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





**Key
      Personnel**





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





**ITEM
      2. DESCRIPTION OF PROPERTY.**





We
      lease
      our headquarters in Santa Fe Springs, California, which expire on February
      28,
      2009, 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.9831
                Romandel Ave.
              Santa
                Fe Springs, CA 90670
            
            
            Manufacturing
            
            
            38,000




8





**ITEM
      3. LEGAL PROCEEDINGS.**





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





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





There
      were no matters submitted to security holder for the quarter ended December
      31,
      2007.





**PART
      II**





**ITEM
      5. MARKET FOR COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
      PURCHASES OF EQUITY SECURITIES**





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





**For
      Year Ended 2007 (Quarter Ended)**





**HIGH**
            
            **LOW**December
                31
            
            $
            0.43
            
            
            0.15September
                30
            
            
            0.75
            
            
            0.36June
                30
            
            
            0.82
            
            
            0.34March
                31
            
            
            0.48
            
            
            0.20





**For
      Year Ended 2006 (Quarter Ended)**





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




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.


9





At
      December 31, 2007 we had approximately 165 shareholders of our common stock.
      This figure does not include beneficial holders or common stockholder's nominee
      co-trust name, as we cannot accurately estimate the number of these beneficial
      holders.





The
      transfer agent and registrar for our common stock as of December 31, 2007 was
      Computershare AKA U.S. Stock Transfer, Los Angeles, California, which was
      changed to Signature Stock Transfer, Plano, Texas on March 18, 2008.




***Holders
      of Our Common Stock***


As
      of
      December 31, 2007, there were approximately 1,000 holders of record of our
      common stock.




***Dividends***




We
      have never declared or paid any cash dividends on
      our common stock. We anticipate that any earnings will be retained for
      development and expansion of our business and do not anticipate paying any
      cash
      dividends in the near future. Our Board of Directors has sole discretion to
      pay
      cash dividends based on our financial condition, results of operations, capital
      requirements, contractual obligations, and other relevant factors.




**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
      July
      2007, holders of the Company's Preferred C converted 900 shares into 15,000
      shares of common stock. There were no other transactions related to preferred
      stock.





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





**COMMON
      STOCK**





**Related
      to CAMOFI Secured Convertible Note**





On
      June
      29, 2007, the Company issued 675,000 shares of common stock to CAMOFI as a
      conversion of approximately $350,000 of principal and approximately $74,317
      of
      interest due on CAMOFI’s secured convertible **** n ote .
      The
      conversion price was $0.63 per share.





In
      connection with the initial issuance of the CAMOFI
      secured convertible **** n ote on
      February 28, 2006, the Company issued 250,000 shares of common stock to the
      placement agent. The common stock was recorded at the estimated fair value
      of
      the common stock on the date of the transaction totaling approximately $157,500,
      which was recorded as deferred financing cost and is amortized over 3 years,
      the
      life of the note. During 2006 and 2007, the Company amortized to interest
      expense an amount of $43,750 and $52,500, respectively. As of December 31,
      2007,
      a balance of $61,250 remained to be amortized.




10


**Issuance
      of Common Stock For Services**





***Issuance
      Of Stock For Services Valued Based On*** **The
      Stock Market Price Of The Shares At The Contract Date** ******




In
      December 2007, the Company entered into a three month contract with a third
      party for corporate consulting and marketing services valued at $180,000. The
      fee was paid as follows: $30,000 in cash, 300,000 shares of the Company’s common
      stock valued at $45,000 based on the stock market price of the shares at the
      contract date, and 700,000 options valued at $105,000 using the Black-Scholes
      option-pricing model to purchase the Company’s common shares. The value of the
      common stock and options issued on the date of the transaction were recorded
      as
      a deferred charge and is amortized to operating expense over the life of the
      agreement. At December 31, 2007, the remaining deferred consulting fees under
      this contract totaled $125,000.




In
      June
      2007, the Company entered into a three year contract with a third party for
      internet public investor relations services valued at $210,000. The fee was
      paid
      in the form of 300,000 shares of Company’s common stock and valued based on the
      stock market price of the shares at the contract date. The value of the common
      stock on the date of the transaction was recorded as a deferred charge and
      is
      amortized to operating expense over the life of the agreement. At December
      31,
      2007, the remaining deferred consulting fees under this contract totaled
      $169,171.





In
      June
      2007, the Company entered into a ninety day contract with a third party for
      public investor relations services valued at $10,500. The fee was paid in the
      form of 15,000 shares of the Company’s common stock and valued based on the
      stock market price of the shares at the contract date. The value of the common
      stock on the date of the transaction was recorded as a deferred charge and
      was
      amortized to operating expense over the life of the agreement. The consulting
      fees under this contract were amortized to expense during the year.





In
      June
      2007, the Company entered into a six month contract with a third party for
      corporate consulting and marketing services valued at $52,500. The fee was
      paid
      in the form of 75,000 shares of the Company’s common stock based on the stock
      market price of the shares at the contract date. The value of the common stock
      on the date of the transaction was recorded as a deferred charge and was
      amortized to operating expense over the life of the agreement. The consulting
      fees under this contract were amortized to expense during the year.




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





***Issuance
      Of Stock For Services Valued*** **in accordance with the EITF 96-18**




In
      May
      2007, the Company issued 100,000 shares of common stock valued at $70,000 (based
      on the market price of the shares) to a third party for public investor
      relations services under one year contract. The common stock was recorded at
      the
      estimated fair value of the common stock on the date of the transaction as
      a
      deferred charge and is amortized to operating expense over the life of the
      agreement. As described in Note 1, in accordance with the EITF 96-18, the value
      of this services are not readily determinable and the fair value of the equity
      instruments is more reliably measurable. Under this arrangements, the
      performance criteria required for a measurement date is not reached until the
      service period has been completed. As a result, the Company is required to
      re-measure the consideration at each reporting date based on its then current
      stock value. During the year ended December 31, 2007, the Company recorded
      net
      decreases to the fair values of such equity based compensation arrangements
      of
      approximately $12,000. At December 31, 2007, the remaining deferred consulting
      fees under this contract totaled $8,250.





In
      February 2007, the Company issued 150,000 shares of common stock valued at
      $60,000 (based on the market price of the shares on the date the services were
      completed in accordance with EITF 96-18) to a third party for investor marketing
      services under a one month contract. The fee was recorded as public company
      expense in the first quarter of 2007 in the consolidated statements of
      operations.


11




In
      February 2007, the Company issued 100,000 shares of common stock valued at
      $36,000 (based on the market price of the shares on the date the services were
      completed in accordance with EITF 96-18) to a third party for financial
      consulting services under a 13 day contract. The fee was recorded as public
      company expense in the first quarter of 2007 in the consolidated statements
      of
      operations.





In
      February 2007, the Company issued 300,000 shares of common stock valued at
      $126,000 (based on the market price of the shares on the date the services
      were
      completed in accordance with EITF 96-18) to a third party for investor relation
      services under a one month contract. The fee was recorded as public company
      expense in the first quarter of 2007 in the consolidated statements of
      operations.





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





***Other
      Issuances***




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




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




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




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





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




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




In
      connection with the initial issuance of the Motivated Minds convertible
      note on
      February 15, 2006, the Company issued 30,000 shares of common stock to the
      note
      holder. The proceeds of the note were allocated to the common shares using
      Relative The Fair Value allocation method in accordance with APB No.14,
      resulting indebt discount of approximately $19,200, which amortized over the
      life of the Note.


12




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, 2007. The related accrued interest
      receivable and interest income are insignificant to the consolidated financial
      statements.




During
      the year ended December 31, 2001, the Company received a subscription receivable
      of $87,500 from a member of the Board of Directors in exchange for shares of
      the
      Company’s restricted common stock. The subscription receivable bears interest at
      an annual rate of 6%. Principal and any unpaid interest were due on October
      6,
      2001. As of December 31, 2007, the subscription receivable remains unpaid.
      The
      related accrued interest receivable and interest income are insignificant to
      the
      consolidated financial statements.




**WARRANTS**





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





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





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





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




**STOCK
      OPTIONS**





Under
      the
      terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase
      an aggregate of 5,000,000 shares of common stock may be issued to key employees,
      as defined. The exercise price of any option may not be less than the fair
      market value of the shares on the date of grant. No options granted may be
      exercisable more than 10 years after the date of grant. The options granted
      generally vest evenly over a one-year period, beginning from the date of grant.





Under
      the
      terms of the Company's non-statutory stock option plan ("NSSO"), options to
      purchase an aggregate of 1,350,000 shares of common stock may be issued to
      non-employees for services rendered. These options are non-assignable and
      non-transferable, are exercisable over a five-year period from the date of
      grant, and vest on the date of grant.


13





During
      the year ended December 31, 2007, the Company granted 800,000 options related
      to
      consulting services.





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





The
      following is a status of the stock options and warrants outstanding at December
      31, 2007 and the changes during the two years then ended:





Year Ended
              December 31,
              2007
            
            Year Ended
              December 31,
              2006Options and
              Warrants
            
            Weighted
              Average Price
            
            Options and
              Warrants
            
            Weighted
              Average
              PriceOutstanding,
                beginning of year
            
            
            9,653,728
            
            $
            0.46
            
            
            1,468,500
            
            $
            0.40Granted
            
            
            800,000
            
            $
            0.15
            
            
            8,371,455
            
            $
            0.48Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cancelled/Terminated
            
            
            (125,000
            )
            
            (1.01
            )
            
            (186,227
            )
            
            (0.87
            )Outstanding
                and exercisable, end of year
            
            
            10,328,728
            
            $
            0.43
            
            
            9,653,728
            
            $
            0.46





The
      following table summarizes information related to stock options outstanding
      at
      December 31, 2007:





EQUITY
      COMPENSATION PLAN INFORMATION





NUMBER OF SECURITIES TO BE
              ISSUED UPON EXERCISE OF
              OUTSTANDING OPTIONS,
              WARRANTS AND RIGHTS
            
            WEIGHTED-AVERAGE
              EXERCISE PRICE OF
              OUTSTANDING OPTIONS,
              WARRANTS AND RIGHTS
            
            NUMBER OF SECURITIES
              REMAINING AVAILABLE FOR
              FUTURE ISSUANCE UNDER
              EQUITY COMPENSATION PLANS
              (EXCLUDING SECURITIES REFLECTED
              IN COLUMN(A))(A)
            
            (B)
            
            (C)Equity
                compensation plans approved by security
                holders
            
            
            3,150,000
            
            
            0.22
            
            
            1,850,000Equity
                compensation plans not approved by security holders
            
            
            7,178,728
            
            
            0.52
            
            
            —Total
            
            
            10,328,728
            
            
            —
            
            
            1,850,000





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





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


14




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





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





**OVERVIEW**





The
      earnings of New Century Companies for the year ended 2007 were negative as
      a
      result of high non cash interest expense resulting from debt discount
      amortization related to two convertible notes, debt expenses, and non cash
      stock
      expenses for investor relations and employee options. The Company's current
      strategy is to expand its customer sales base with its present line of machine
      products. Plans for expansion are expected to be funded through current working
      capital from ongoing sales. However, significant growth will require additional
      funds in the form of debt or equity, or a combination thereof. The Company's
      growth strategy also includes strategic acquisitions in addition to growing
      the
      current business. A significant acquisition will require additional financing.





**RESULTS
      OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2007 COMPARED TO DECEMBER 31,
      2006.**





Revenues.
      New Century generated revenues of $10,048,309 for the fiscal year ended December
      31, 2007, which was a 21% increase from $8,318,957 for the fiscal year ended
      December 31, 2006. The increase is the result of increased volume and selling
      prices of New Century machines due to availability for competitive
      machines.





Gross
      Profit. There was a 13% increase in gross profit for the fiscal year ended
      December 31, 2007, of $238,858, due to the increased volume of sales and higher
      selling prices.





Operating
      Loss. There was a decrease of 32% in operating loss for the fiscal year ended
      December 31, 2007, from operating loss of $(251,421) for the fiscal year ended
      December 31, 2006 to an operating loss of $(332,625) for the fiscal year ended
      December 31, 2007. Although there was a 21% increase in revenues from the fiscal
      year ended December 31, 2006 to the fiscal year ended December 31, 2007, our
      consulting expenses increased 85% from $520,346 for the fiscal year ended
      December 31, 2006 to $964,570 for the fiscal year ended December 31, 2007.
      The
      increase in consulting expenses was due primarily due to consulting services
      for
      filing the Company’s SB-2 and secondarily to increased corporate awareness
      services.





Interest
      Expense. Interest expense for the fiscal year ended December 31, 2007 increased
      to $3,153,781, compared to $2,363,187 for the period ended December 31, 2006.
      The increase of approximately $791,000 is primarily the result of approximately
      $650,000 additional penalties and interest due to defaulting on CAMOFI
      loan.





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





Revenues.
      New Century generated revenues of $8,318,959 for the fiscal year ended December
      31, 2006, which was a 38% increase from $6,038,459 for the fiscal year ended
      December 31, 2005. The increase is the result of an increase in sales based
      on
      higher selling prices of New Century machines.


15





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





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





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





**FINANCIAL
      CONDITION, LIQUIDITY, CAPITAL RESOURCES**




Our
      principal sources of liquidity have been cash provided by operations, equity
      offerings and borrowings under our various credit facilities. Our principal
      uses
      of cash have been to finance working capital. We anticipate financing working
      capital, facility expansions and other capital expenditures will be our
      principal uses of cash in the future.





It
      is our
      policy to carefully monitor the state of our business, cash requirements and
      capital structure. We believe that funds generated from our operations and
      available from our borrowing facilities will be sufficient to fund current
      business operations as well as anticipated growth over at least the next twelve
      months; however, there can be no assurance that any growth will occur and
      unexpected events may result in our need to raise additional capital.





The
      net
      cash increase during the fiscal year ended 2007 was $228,411. For the year
      ended
      December 31, 2007, the cash provided from operating activities was $767,115,
      compared with $(1,642,740) used cash in operating activities in the prior year.
      For the year ended December 31, 2007, the cash used in financing activities
      was
      $(506,479), compared with $1,696,058 cash provided by financing activities
      in
      the prior year. The decrease in cash provided by financing activities is
      primarily due to $3,800,000 of proceeds from the issuance of two convertible
      notes in 2006, compared to no cash proceeds from debt or equity in 2007. For
      the
      year ended December 31, 2007, the cash used in investing activities was
      ($32,225), compared with no cash was used in or provided by investing activities
      in 2006.





**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 AND CONTRACTUAL OBLIGATIONS**





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


On
      February 8, 2008, the Company entered in to a lease agreement for its warehouse
      and offices. The agreement is for 12 months, totaling $360,000
      rent.





**GOING
      CONCERN**





The
      Company's independent registered public accounting firm has stated in their
      report included in this Form 10-KSB, that the Company has accumulated
      deficit of approximately $11,233,000, working capital deficit of approximately
      $1,425,000 and was also in default on its CAMOFI convertible debt (See Note
      6).
      These factors, among others raise substantial doubt about the Company’s ability
      to
      continue as a going concern. The company intends to fund operations through
      anticipated increased sales along with debt and equity financing arrangements
      which management believes may be insufficient to fund its capital expenditures,
      working capital and other cash requirements for the year ending December 31,
      2008. Therefore, the Company will be required to seek additional funds to
      finance its long-term operations. The successful outcome of future activities
      cannot be determined at this time and there is no assurance that if achieved,
      the Company will have sufficient funds to execute its intended business plan
      or
      generate positive operating results.




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




§
            The Company continues its aggressive
                program for selling inventory.


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


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




16





**CRITICAL
      ACCOUNTING POLICIES**





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





**Revenue
      Recognition**





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





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





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





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





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





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





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.


17


**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.





**Accumulated
      Preferred Dividend and Waiver Of Preferred Dividend**





As
      of
      December 31, 2007, the Company accumulated unpaid dividends totaling $376,725.
      At December 31, 2007, the Company had a total of 26,880 preferred shares Series
      C and 11,640 preferred shares Series D issued and outstanding.





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




**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.





*Income
      Taxes*





Income
      taxes are accounted for in accordance with Statement of Financial Accounting
      Standards No. 109, *Accounting
      for Income Taxes* (“SFAS
      109”). This statement requires the recognition of deferred tax assets and
      liabilities to reflect the future tax consequences of events that have been
      recognized in the Company’s financial statements or tax returns. Measurement of
      the deferred items is based on enacted tax laws. In the event the future
      consequences of differences between financial reporting bases and tax bases
      of
      the Company’s assets and liabilities result in a deferred tax asset,
      SFAS 109 requires an evaluation of the probability of being able to realize
      the future benefits indicated by such assets. A valuation allowance related
      to a
      deferred tax asset is recorded when it is more likely than not that some portion
      or all of the deferred tax asset will not be realized. A full valuation
      allowance for deferred tax assets has been provided at December 31, 2007
      and 2006. The valuation allowance approximates $4,921,000 and $4,527,000 for
      the
      years ended December 31, 2007 and 2006, respectively. (See Note 7)




*Stock-Based
      Compensation*




Effective
      January 1, 2006, we adopted the fair value method of accounting for employee stock  compensation cost
      pursuant to SFAS
      No. 123(R), *Share-Based
      Payments* .
      Prior
      to that date, we used the intrinsic value method under Accounting Policy Board
      Opinion No. 25 to recognize compensation cost. Under the method of accounting
      for the change to the fair value method, compensation cost
      recognized is the same amount that would have been recognized if the fair value
      method would have been used for all awards granted. The effects on net income
      and income per share had the fair value method been applied to all outstanding
      and unvested awards in each period are reflected in Note 1 of the financial
      statements.




Our
      assumptions made for purposes of estimating the fair value of our stock options,
      as well as a summary of the activity under our stock option plan are included
      in
      Note 1 of the financial statements.




We
      account for the stock options granted to non-employees in accordance with EITF
      Issue No. 96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring* , *or
      in Conjunction with Selling, Goods or Services* ,
      and
      SFAS No. 123(R).


***Significant
        Recent Accounting Pronouncements***
 
 In
        September 2006, the FASB issued SFAS No.157, “Fair Value Measurements,” which
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. SFAS No. 157 simplifies and codifies related guidance
        within GAAP, but does not require any new fair value measurements. The guidance
        in SFAS No. 157 applies to derivatives and other financial instruments measured
        at estimated fair value under SFAS No. 133, “Accounting for Derivative
        Instruments and Hedging Activities” and related pronouncements. SFAS No. 157 is
        effective for financial statements issued for fiscal years beginning after
        November 15, 2007, and interim periods within those fiscal years. Management
        does not expect the adoption of SFAS No. 157 to have a significant effect
        on the
        Company’s financial position or results of operation.
 
 On
        February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities - Including an Amendment of FASB
        Statement No. 115.” This standard permits an entity to measure many financial
        instruments and certain other items at estimated fair value. Most of the
        provisions of SFAS No. 159 are elective; however, the amendment to SFAS No.
        115
        (“Accounting for Certain Investments in Debt and Equity Securities”) applies to
        all entities that own trading and available-for-sale securities. The fair
        value
        option created by SFAS No. 159 permits an entity to measure eligible items
        at
        fair value as of specified election dates. Among others, eligible items exclude
        (1) financial instruments classified (partially or in total) as permanent
        or
        temporary stockholders’ equity (such as a convertible debt security with a
        non-contingent beneficial conversion feature) and (2) investments in
        subsidiaries and interests in variable interest entities that must be
        consolidated. A for-profit business entity will be required to report unrealized
        gains and losses on items for which the fair value option has been elected
        in
        its statements of operations at each subsequent reporting date. The fair
        value
        option (a) may generally be applied instrument by instrument, (b) is irrevocable
        unless a new election date occurs, and (c) must be applied to the entire
        instrument and not to only a portion of the instrument. SFAS No. 159 is
        effective as of the beginning of the first fiscal year that begins after
        November 15, 2007. Early adoption is permitted as of the beginning of the
        previous fiscal year provided that the entity (i) makes that choice in the
        first
        120 days of that year, (ii) has not yet issued financial statements for any
        interim period of such year, and (iii) elects to apply the provisions of
        SFAS
        No. 157 (“Fair Value Measurements”). The adoption of SFAS No. 159 is not
        expected to have a significant impact on future financial
        statements.
 18
 In
        December 2007, the FASB issued SFAS No. 141(R), *Business
        Combinations* .
        SFAS
        No. 141(R) retains the fundamental requirements in SFAS No. 141, *Business
        Combinations* ,
        that
        the acquisition method of accounting be used for all business combinations
        and
        for an acquirer to be identified for each business combination. SFAS No.
        141(R)
        requires an acquirer to recognize the assets acquired, the liabilities assumed,
        and any noncontrolling interest in the acquiree at the acquisition date,
        measured at their fair values as of that date, with limited exceptions specified
        in SFAS No. 141(R). In addition, SFAS No. 141(R) requires acquisition costs
        and
        restructuring costs that the acquirer expected but was not obligated to incur
        to
        be recognized separately from the business combination, therefore, expensed
        instead of part of the purchase price allocation. SFAS No. 141(R) will be
        applied prospectively to business combinations for which the acquisition
        date is
        on or after the beginning of the first annual reporting period beginning
        on or
        after December 15, 2008. Early adoption is prohibited. The Company expects
        to
        adopt SFAS No. 141(R) to any business combinations with an acquisition date
        on
        or after January 1, 2009.
 
 In
        December 2007, the FASB issued SFAS No. 160, *Noncontrolling
        Interests in Consolidated Financial Statements, an amendment to ARB No.
        51* .
        SFAS
        No. 160 changes the accounting and reporting for minority interests, which
        will
        be recharacterized as noncontrolling interests and classified as a component
        of
        equity. SFAS No. 160 is effective for fiscal years, and interim periods within
        those fiscal years, beginning on or after December 15, 2008. Early adoption
        is
        prohibited. The Company is currently evaluating the impact SFAS No. 160 may
        have
        on its consolidated financial statements.
 
 Other
        recent accounting pronouncements issued by the FASB (including its Emerging
        Issues Task Force, or “EITF”), the AICPA, and the SEC did not or are not
        believed by management to have a material impact on the Company’s present or
        future consolidated financial statements.





**ITEM
      7. FINANCIAL STATEMENTS.**





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




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





None.





**ITEM
      8A. CONTROLS AND PROCEDURES**





*Evaluation
      of Disclosure Controls and Procedures*





We
      conducted an evaluation under the supervision and with the participation of
      our
      management, including our Chief Executive Officer ,
      who is
      also our Chief Financial Officer, of the
      effectiveness of the design and operation of our disclosure controls and
      procedures. The term “disclosure controls and procedures,” as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
      amended (“Exchange Act”), means controls and other procedures of a company that
      are designed to ensure that information required to be disclosed by the company
      in the reports it files or submits under the Exchange Act is recorded,
      processed, summarized and reported, within the time periods specified in the
      Securities and Exchange Commission’s rules and forms. Disclosure controls and
      procedures also include, without limitation, controls and procedures designed
      to
      ensure that information required to be disclosed by a company in the reports
      that it files or submits under the Exchange Act is accumulated and communicated
      to the company’s management, including its principal executive and principal
      financial officers, or persons performing similar functions, as appropriate,
      to
      allow timely decisions regarding required disclosure. Based on this evaluation,
      our Chief Executive Officer concluded as of December 31, 2007 that our
      disclosure controls and procedures were not effective at the reasonable
      assurance level due to the material weaknesses discussed immediately below.





*Management’s
      Report on Internal Control Over Financial Reporting*





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
      under the Exchange Act. Our internal control over financial reporting is
      designed to provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external purposes
      in
      accordance with generally accepted accounting principles. Our internal control
      over financial reporting includes those policies and procedures
      that:





(i)
            pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect the transactions and dispositions of our
                assets;





(ii)
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that our receipts and expenditures are
                being
                made only in accordance with authorizations of our management and
                directors; and





(iii)
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material affect on our financial
                statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.


19




A
      material weakness in internal control over financial reporting is defined by
      the
      Public Company Accounting Oversight Board’s Audit Standard No. 5 as being a
      deficiency, or combination of deficiencies, that results in a reasonable
      possibility that a material misstatement of the financial statements would
      not
      be prevented or detected on a timely basis. A significant deficiency is a
      control deficiency, or combination of control deficiencies, such that there
      is a
      reasonable possibility that a significant misstatement of the company’s annual
      or interim financial statements will not be prevented or detected.





Management
      assessed and evaluated the effectiveness of our internal control over financial
      reporting as of December 31, 2007. Management identified five material
      weaknesses relating to our internal control over financial reporting, as
      follows:





(1)
            We
                had not effectively implemented comprehensive entity-level internal
                controls.





(2)
            We
                did not have a sufficient complement of personnel with appropriate
                training and experience in generally accepted accounting principals,
                or
                GAAP.





(3)
            We
                did not adequately segregate the duties of different personnel within
                our
                accounting group due to an insufficient complement of staff.





(4)
            We
                did not implement financial controls that were properly designed
                to meet
                the control objectives or address all risks of the processes or the
                applicable assertions of the significant
                accounts.





(5)
            Due
                to the material weaknesses identified at our entity level controls
                we did
                not test whether our financial activity level controls or our information
                technology general controls were operating sufficiently to identify
                a
                deficiency, or combination of deficiencies, that may result in a
                reasonable possibility that a material misstatement of the financial
                statements would not be prevented or detected on a timely
                basis.





The
      foregoing material weaknesses are described in detail below under the caption
      “Material Weaknesses.” ** As
      a
      result of these material weaknesses, our Chief Executive Officer concluded
      that
      we did not maintain effective internal control over financial reporting as
      of
      December 31, 2007.





In
      making
      its assessment of our internal control over financial reporting, management
      used
      criteria issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (“COSO”) in its *Internal
      Control-Integrated Framework* .
      Because
      of the material weaknesses described above, management believes that, as of
      December 31, 2007, we did not maintain effective internal control over financial
      reporting.





An
      independent firm assisted management with its assessment of the effectiveness
      of
      our internal control over financial reporting, including scope determination,
      planning, staffing, documentation, testing, and overall program management
      of
      the assessment project.





*Inherent
      Limitations on the Effectiveness of Controls*





Management
      does not expect that our disclosure controls and procedures or our internal
      control over financial reporting will prevent or detect all errors and all
      fraud. A control system, no matter how well conceived and operated, can provide
      only reasonable, not absolute, assurance that the objectives of the control
      systems 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 in
      a
      cost-effective control system, no evaluation of internal control over financial
      reporting can provide absolute assurance that misstatements due to error or
      fraud will not occur or that all control issues and instances of fraud, if
      any,
      have been or will be detected.


20





These
      inherent limitations include the realities that judgments in decision-making
      can
      be faulty and that breakdowns can occur because of a simple error or mistake.
      Controls can also be circumvented by the individual acts of some persons, by
      collusion of two or more people, or by management override of the controls.
      The
      design of any system of controls is based in part on 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. Projections of any evaluation of controls effectiveness to future
      periods are subject to risks. Over time, controls may become inadequate because
      of changes in conditions or deterioration in the degree of compliance with
      policies or procedures.





*Material
      Weaknesses*





(1) We
      had not effectively implemented comprehensive entity-level internal controls,
      as
      evidenced by the following deficiencies:





·  We
      did
      not establish an independent Audit Committee who are responsible for the
      oversight of the financial reporting process, nor was an Audit Committee Charter
      defined. At the current time we do not have any independent members of the
      Board
      who could comprise this committee.





·  We
      did
      not establish an adequate Whistle Blower program for the receipt, retention,
      and
      treatment of complaints received by the issuer regarding accounting, internal
      accounting controls, or auditing matters; and the confidential, anonymous
      submission by employees of the issuer of concerns regarding questionable
      accounting or auditing matters to the Audit Committee and Board of
      Directors.





·  We
      did
      not have an individual on our Board, nor on the Audit Committee, who meets
      the
“Financial Expert” criteria.





·  We
      did
      not maintain documentation evidencing quarterly or other meetings between the
      Board, senior financial managers and our General Counsel. Such meetings include
      reviewing and approving quarterly and annual filings with the Securities and
      Exchange Commission and reviewing on-going activities to determine if there
      are
      any potential audit related issues which may warrant involvement and follow-up
      action by the Board.





·  We
      did
      not follow a formal fraud assessment process to identify and design adequate
      internal controls to mitigate those risks not deemed to be acceptable.





·  We
      did
      not conduct annual performance reviews or evaluations of our management and
      staff employees.





(2)  We
      did
      not have a sufficient complement of personnel with appropriate training and
      experience in GAAP, as evidenced by the following deficiencies:





·  We
      do not
      have a formally trained Chief Financial Officer who is responsible for the
      oversight of the accounting function. Currently the CEO is responsible for
      this
      function, but has not had formal accounting or auditing experience.





·  The
      Controller is the only individual with technical accounting experience in our
      company but is limited in the exposure to SEC filings and disclosures and is
      not
      a full-time employee of the company.





·  We
      have
      not consulted with other outside parties to assist us in the SEC filings and
      disclosures prior to the 12/31/07 10-K filing during 2007.


21





(3)  We
      did
      not adequately segregate the duties of different personnel within our accounting
      group due to an insufficient complement of staff and inadequate management
      oversight.





(4)  We
      did
      not adequately design internal controls that:





·
            The
                controls identified in the process documentation were not designed
                effectively and had no evidence of operating effectiveness for testing
                purposes.


·
            The
                controls identified in the process documentation did not cover all
                the
                risks for the specific process


·
            The
                controls identified in the process documentation did not cover all
                applicable assertions for the significant
                accounts.





(5)  Due
      to
      the material weaknesses identified at our entity level controls we did not
      test
      whether our financial activity level controls or our information technology
      general controls were operating sufficiently to identify a deficiency, or
      combination of deficiencies, that may result in a reasonable possibility that
      a
      material misstatement of the financial statements would not be prevented or
      detected on a timely basis.


22


**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS, AND CORPORATE
      GOVERNANCE;**


**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, 2007. The Board of Directors of the Company is comprised of only
      one class. All of the directors will serve until the next annual meeting of
      stockholders and until their successors are elected and qualified, or until
      their earlier death, retirement, resignation or removal. Executive officers
      serve at the discretion of the Board of Directors, and are appointed to serve
      until the first Board of Directors meeting following the annual meeting of
      stockholders. Also provided is a brief description of the business experience
      of
      each director and executive officer and the key management personnel during
      the
      past five years and an indication of directorships held by each director in
      other companies subject to the reporting requirements under the Federal
      securities laws.





NAME
            
            AGE
            
            POSITIONDavid
                Duquette
            
            63
            
            Chairman
                of the Board, ChiefFinancial
                Officer, President and DirectorJosef
                Czikmantori
            
            56
            
            Secretary
                and Director





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





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





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





**FAMILY
      RELATIONSHIPS.**





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





**INVOLVEMENT
      IN LEGAL PROCEEDINGS.**





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


23


SECTION
      16(A) BENEFICIAL OWNERSHIP COMPLIANCE.





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
      executive officers and directors and persons who own more than 10% of a
      registered class of the Company's equity securities to file with the Securities
      and Exchange Commission initial statements of beneficial ownership, reports
      of
      changes in ownership and annual reports concerning their ownership of common
      stock and other equity securities of the Company, on Forms 3, 4 and 5,
      respectively. Executive officers, directors and greater than 10% shareholders
      are required by Commission regulations to furnish the Company with copies of
      all
      Section 16(a) reports they file. To the best of the Company's knowledge (based
      solely upon a review of the Forms 3, 4 and 5 filed), no officer, director or
      10%
      beneficial shareholder failed to file on a timely basis for the fiscal year
      ended December 31, 2007 any reports required by Section 16(a) of the Securities
      Exchange Act of 1934, as amended.





**CODE
      OF ETHICS**


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





**AUDIT
      COMMITTEE FINANCIAL EXPERT**


The
      Company does not have an audit committee. Since our securities are not currently
      listed on or with a national securities exchange or national securities
      association, we are not required to have an independent audit committee.
      Therefore, the Company has not designated an audit committee financial expert.
      The Company currently is in the process of identifying independent audit
      committee members, including a financial expert to serve on our audit committee
      and we expect to continue this process in 2008. Because of our size, we do
      not
      have an audit committee, compensation committee or nominating committee.





**STOCKHOLDER
      COMMUNICATIONS**


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





**COMPLIANCE
      WITH SECTION 16 OF THE EXCHANGE ACT**





To
      the
      Company’s knowledge, based solely on its review of the copies of Section 16
      reports furnished to the Company, the Company believes that all individual
      filing requirements applicable to the Company’s directors and executive officers
      were complied with.


24





**ITEM
      10. EXECUTIVE COMPENSATION.**





**SUMMARY
      COMPENSATION TABLE**





The
      following Summary Compensation Table sets forth the compensation earned by
      the
      Company's Chief Executive Officer and the other executive officer who were
      serving as such as of December 31, 2007, for services rendered in all capacity
      for that fiscal year. There are not any other employees having responsibility
      for significant policy decision within the company.





**Name and**
              **Principal**
              **Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus ($)**
            
            **Option**
              **Awards**
              **(1)**
              **($)**
            
            **All Other
                Compensation ($)**
            
            **Total**
              **($)****David
                Duquette,**Chief
                Executive Officer,
            
            
            2007
            
            
            200,000
            
            
            0
            
            
            158,400
            (2)
            
            0
            
            
            358,400Chief
                Financial Officer
            
            
            2006
            
            
            155,000
            
            
            0
            
            
            21,600
            (2)
            
            0
            
            
            176,600and
                President
            
            
            2005
            
            
            101,273
            
            
            0
            
            
            0
            
            
            0
            
            
            101,273**Josef
                Czikmantory**Vise
                President,
            
            
            2007
            
            
            108,300
            
            
            0
            
            
            79,200
            (3)
            
            0
            
            
            187,500Secretary
                Officer
            
            
            2006
            
            
            88,350
            
            
            0
            
            
            10,800
            (3)
            
            0
            
            
            99,1502005
            
            
            25,650
            
            
            0
            
            
            0
            
            
            0
            
            
            25,650





(1)
      Valuation based on the dollar amount of option grants recognized for financial
      statement reporting purposes pursuant to FAS 123(R) with respect to 2006 and
      2007.




(2)
      Mr.
      David Duquette received a stock option grant of 1,000,000 shares in November
      13,
      2006 at an exercise price of $0.20 per share, fully vested and exercisable
      after
      December 1, 2007.




(3)
      Mr.
      Josef Czikmantory received a stock option grant of 500,000 shares in November
      13, 2006 at an exercise price of $0.20 per share, fully vested and exercisable
      after December 1, 2007.





**2007
      GRANTS OF PLAN-BASED AWARDS TABLE**





**Estimated Future Payouts Under**
              **Equity Incentive Plan Awards**
            
            **Exercise or**
              **Base Price**
              **of Option**
            
            **Closing**
              **Price on**
              **Grant**
            
            **Grant Date
                Fair**
              **Value of
                Stock and****Name**
            
            **Grant**
              **Date**
            
            **Threshold
                ($)**
            
            **Target**
              **($)**
            
            **Maximum
                ($)**
            
            **Awards**
                **($ / Sh)**
            
            **Date**
                **($ / Sh)**
            
            **Option**
              **Awards
                ($)**(1)
            
            (2)
            
            (3)**David
                Duquette**
            
            
            **09/12/03**
            
            
            72,000
            
            
            -
            
            
            100,000
            
            
            0.25
            
            
            -
            
            
            0.18**11/13/06**
            
            
            180,000
            
            
            -
            
            
            200,000
            
            
            0.20
            
            
            0.18
            
            
            0.18**Josef
                Czikmantory**
            
            
            **09/12/03**
            
            
            27,000
            
            
            -
            
            
            37,500
            
            
            0.25
            
            
            -
            
            
            0.18**11/13/06**
            
            
            90,000
            
            
            -
            
            
            100,000
            
            
            0.20
            
            
            0.18
            
            
            0.18





(1)
      December 31, 2007 unexercised options evaluated using fair value at grant
      date.




(2)
      December 31, 2007 remaining compensation expense of options evaluated using
      closing price on grant date.





(3)
      December 31, 2007 unexercised options valuated at exercise price of
      options.


25




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





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





(1)
      (2) These options were fully vested as of December 31, 2007.




**Pension
      Benefits**





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





**Nonqualified
      Deferred Compensation**





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





**LONG-TERM
      INCENTIVE PLANS**





As
      of
      December 31, 2007 there is no long-term incentive plan.


The
      Company have no employment agreements with its executive
      officers.


26





**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, 2007 by (i) those persons or groups known to the
      Company who will beneficially own more than 5% of the Company's common stock;
      (ii) each director and director nominee; (iii) each executive officer; and,
      (iv)
      all directors and executive officers as a group. The information is determined
      in accordance with Rule 13(d)-3 promulgated under the Exchange Act based upon
      information furnished by persons listed or contained in filings made by them
      with the Securities and Exchange Commission by information provided by such
      persons directly to the Company. Except as indicated below, the stockholders
      listed possess sole voting and investment power with respect to their shares.





NAME
                OF BENEFICIAL OWNER
            
            NO.
                OF  SHARES
            
            PERCENTAGE
                OFOWNERSHIPDavid
                Duquette
            
            
            2,433,334
            (1)
            
            18
            %Josef
                Czikmantori
            
            
            1,150,000
            (2)
            
            8
            %Officers
                and Directors as a Group (2 persons)
            
            
            3,583,334
            
            
            26
            %




Based
      on
      13,744,656 shares outstanding. Common stock subject to options or warrants
      that
      are currently exercisable or exercisable within 60 days of December 31, 2007
      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 1,400,000 shares (ISOP).





(2)
      Includes options to purchase 650,000 shares (ISOP).




EQUITY
        COMPENSATION PLAN INFORMATION
 
 NUMBER OF SECURITIES TO BE
                ISSUED UPON EXERCISE OF
                OUTSTANDING OPTIONS,
                WARRANTS AND RIGHTS
              
              WEIGHTED-AVERAGE
                EXERCISE PRICE OF
                OUTSTANDING OPTIONS,
                WARRANTS AND RIGHTS
              
              NUMBER OF SECURITIES
                REMAINING AVAILABLE FOR
                FUTURE ISSUANCE UNDER
                EQUITY COMPENSATION PLANS
                (EXCLUDING SECURITIES REFLECTED
                IN COLUMN(A))(A)
              
              (B)
              
              (C)Equity
                  compensation plans approved by security
                  holders
              
              
              3,150,000
              
              
              0.22
              
              
              1,850,000Equity
                  compensation plans not approved by security holders
              
              
              7,178,728
              
              
              0.52
              
              
              —Total
              
              
              10,328,728
              
              
              —
              
              
              1,850,000
 
 From
        time
        to time, the Company issues warrants to employees and to third parties pursuant
        to various agreements, which are not approved by the shareholders.
 
 See
        discussion of Plan approval by the shareholders in the accompanying financial
        statements.


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





**NOTES
      RECEIVABLE FROM STOCKHOLDERS**





As
      of
      December 31, 2007, the Company had loans to our officers for $585,298, including
      accrued interest. The loans accrue interest at 6% and are due on demand. The
      Company has reclassified the notes receivable from stockholders to stockholders'
      equity as such amounts have not been repaid during the current year. The
      stockholders have shown the ability to repay the loans and intend on repaying
      such amounts in the future. For each of the years ended December 31, 2007 and
      2006, total interest income from notes receivable from stockholders approximated
      $20,000.


27





**ITEM
      13. EXHIBITS.**


EXHIBIT
                NUMBER
              
              DESCRIPTION2.1
              
              Share
                  Exchange Agreement dated as of December 18, 2000. (1)3.1
              
              Certificate
                  of Incorporation as filed with the Delaware Secretary of State,
                  as
                  amended.(2)3.2
              
              Certificate
                  of Amendment to the Certificate of Incorporation as filed with
                  the
                  Delaware Secretary of State.(3)3.2
              
              Bylaws.
                  (2)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;
                  (4)10.2
              
              Series
                  A Convertible Note issued to Motivated Minds, LLC dated February
                  28, 2006
                  (6)10.3
              
              Common
                  Stock Purchase Warrants issued to Motivated Minds, LLC dated February
                  28,
                  2006 (6)10.4
              
              Registration
                  Rights Agreement dated February 15, 2006 (6)10.5
              
              Securities
                  Purchase Agreement between New Century Companies, Inc. and CAMOFI
                  Master
                  LDC (5)10.6
              
              12%
                  Senior Secured Convertible Note issued by New Century Companies,
                  Inc. in
                  favor of CAMOFI Master LDC (5)10.7
              
              Common
                  Stock Purchase Warrant issued to CAMOFI Master LDC (5)10.8
              
              Registration
                  Rights Agreement between New Century Companies, Inc. and CAMOFI
                  Master LDC
                  (5)10.9
              
              Escrow
                  Agreement between New Century Companies, Inc., CAMOFI Master LDC
                  and
                  Katten Muchin Rosenman LLP, as Escrow Agent (5)10.10
              
              Security
                  Agreement between New Century Companies, Inc. and its current and
                  future
                  subsidiaries on the one hand, and CAMOFI Master LDC on the other
                  hand
                  (5)10.11
              
              Subsidiary
                  Guarantee provided by all current and future subsidiaries of New
                  Century
                  Companies, Inc. to CAMOFI Master LDC (5)10.12
              
              Lock-up
                  Agreement with certain shareholders of New Century Companies, Inc.
                  (5)10.13
              
              Allonge
                  to Series A Convertible Note dated August 8, 2006 (8)10.14
              
              Amendment
                  to Registration Rights Agreement dated August 8, 2006
                  (8)10.15
              
              Amended
                  and Restated Registration Rights Agreement dated December 19, 2006
                  (7)10.16
              
              Common
                  Stock Purchase Warrants issued to Motivated Minds, LLC dated December
                  19,
                  2006 (7)10.17
              
              Amended
                  and Restated Registration Rights Agreement dated May 1,
                  2007(9)10.18
              
              July
                  18, 2007 CAMOFI Master LDC’ waiver of right to require registration of 33%
                  of New Century Companies, Inc’ outstanding stock , (10)10.18
              
              Placement
                  Agent agreement with Ascendiant Securities, LLC dated January 26,
                  2006
                  (9)21.1
              
              Subsidiaries
                  of the Company (6).23.1
              
              Consent
                  of Squar, Milner, Peterson, Miranda, & Williamson, LLP (filed
                  herewith)




28





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
            
            Certification
                required by Rule 13a-14(a) or rule 15d-14(d) and under Section 906
                of the
                Sarbanes-Oxley act of 2002.(1)
            
            Incorporated
                herein by reference from the Company's filing on Form 8-K filed on
                August
                23, 2000.(2)
            
            Incorporated
                by reference to Exhibit 2.1 the Company's Registration Statement
                on Form
                C-18, filed on August 14, 1980.(3)
            
            Incorporated
                by reference to 8-K filed June 4, 2003(4)
            
            Incorporated
                by reference to the Exhibit 2.1 of the 8-K filed June 4,
                2003.(5)
            
            Incorporated
                by reference to the Company’s Form 8-K filed on March 13,
                2006(6)
            
            Incorporated
                by reference to the Company’s Form SB-2 Registration Statement filed on
                June 8, 2006(7)
            
            Incorporated
                by reference to the Company’s Form 8-K filed on December 26,
                2006(8)
            
            Incorporated
                by reference to the Company’s Registration Statement on Form SB-2 filed on
                January 23, 2007(9)
            
            Incorporated
                by reference to the Company’s Registration Statement on Form SB-2 filed on
                May 31, 2007(10)
            
            Incorporated
                by reference to the Company’s Registration Statement on Form SB-2 filed on
                July 19, 2007




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





The
      following table presents fees for professional services rendered by Squar,
      Milner, Peterson, Miranda & Williamson LLP ("Squar Milner") for the annual
      audit of our consolidated financial statements as of and for the years ended
      December 31, 2007, and 2006 and fees billed for other services rendered by
      Squar
      Milner during such years:





For
      the
      Years Ended December 31,





2007
            
            2006Audit
                Fees (1)
            
            $
            123,000
            
            $
            107,000Audit
                Related Fees
            
            $
            10,700
            
            
            -Tax
                Fees
            
            $
            8,900
            
            $
            8,400All
                Other Fees (2)
            
            $
            53,700
            
            $
            20,100$
            196,300
            
            $
            135,500





(1)
      Such
      billings include the quarterly reviews.


(2)
      Such
      billings were in connection with review of 2007 SB-2 filings and SEC Comment
      letters.





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





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


29


**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:
                May 15, 2008*
            *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:
                May 15, 2008*
            */s/
                DAVID DUQUETTE***
            *Name:    David
                Duquette***
            *Title:      Chairman,
                President and Director***
            ***Date:
                May 15, 2008*
            */s/
                JOSEF CZIKMANTORI***
            *Name:    Josef
                Czikmantori***
            *Title:      Secretary
                and Director*


30






**NEW
      CENTURY COMPANIES, INC.**


**AND
      SUBSIDIARY**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**DECEMBER
      31, 2007 AND 2006**










**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





Report
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheet
            F-2Consolidated
                Statements of Operations
            F-3Consolidated
                Statements of Stockholders’ Equity (Deficit)
            F-4Consolidated
                Statements of Cash Flows
            F-5Notes
                to Consolidated Financial Statements
            F-6







**REPORT
      OF INDEPENDENT REGISTERED PUBLIC AC****COUNTING
      FIRM**




To
      the
      Board of Directors and Stockholders of


New
      Century Companies, Inc. and Subsidiary





We
      have
      audited the accompanying consolidated balance sheet of New Century Companies,
      Inc. and Subsidiary (the "Company") as of December 31, 2007, and the related
      consolidated statements of operations, stockholders’ equity (deficit) and cash
      flows for each of the two years in the period ended December 31, 2007. These
      consolidated financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The Company
      was not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit includes consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements. An audit also includes assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall financial statement presentation. We believe that
      our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of New Century Companies,
      Inc.
      and Subsidiary as of December 31, 2007, and the results of their operations
      and
      their cash flows for each of the two years in the period ended December 31,
      2007
      in conformity with accounting principles generally accepted in the United States
      of America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 1 to the
      consolidated financial statements, the Company has an accumulated deficit of
      approximately $11,233,000, a working capital deficit of approximately $1,425,000
      and was in default on its convertible debt. This factor, among others, raise
      substantial doubt about the Company’s ability to continue as a going concern.
      Management’s plans regarding these matters are also described in Note 1. The
      accompanying consolidated financial statements do not include any adjustments
      that might result from the outcome of this uncertainty.




/s/
      SQUAR, MILNER, PETERSON,
      MIRANDA & WILLIAMSON, LLP





May
      14,
      2008


Newport
      Beach, California


F-1





**NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEET**


**December
      31, 2007**





**ASSETS****Current
                Assets**Cash
            
            $
            281,729Contract
                receivables, net
            
            
            438,876Inventories,
                net
            
            
            886,107Costs
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            
            570,797Deferred
                financing costs, net of current portion
            
            
            358,292Prepaid
                expenses and other current assets
            
            
            14,183Total
                current assets
            
            
            2,549,984**Property
                and Equipment, net**
            
            
            269,092**Deferred
                Financing Costs Long Term, net**
            
            
            59,715Total
                Assets
            
            $
            2,878,791**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Bank
                Overdraft
            
            $
            18,962Accounts
                payable and accrued liabilities
            
            
            2,074,666Dividends
                payable
            
            
            376,725Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            88,025Note
                payable, net of current portion
            
            
            25,597Convertible
                notes payable, net of discount of $1,175,504
            
            
            1,391,163Total
                current liabilities
            
            
            3,975,138**Long-Term
                Liabilities**Notes
                payable, long term portion
            
            
            37,679Total
                long term liabilities
            
            
            37,679**Commitments
                and Contingencies****Stockholders'
                Equity**Cumulative,
                convertible, Series B preferred stock, $1 par value, 15,000,000 shares
                authorized, no shares issued and outstanding (liquidation preference
                of
                $25 per share)
            
            
            -Cumulative,
                convertible, Series C preferred stock, $1 par value, 75,000 shares
                authorized, 26,880 shares issued and outstanding (liquidation preference
                of $910,000)
            
            
            26,880Cumulative,
                convertible, Series D preferred stock, $25 par value, 75,000 shares
                authorized, 11,640 shares issued and outstanding (liquidation preference
                of $416,000)
            
            
            291,000Common
                stock, $0.10 par value, 50,000,000 shares authorized; 13,744,654
                shares
                issued and outstanding
            
            
            1,374,466Subscriptions
                receivable
            
            
            (462,500
            )Notes
                receivable from stockholders
            
            
            (545,165
            )Deferred
                consulting fees
            
            
            (334,921
            )Additional
                paid-in capital
            
            
            9,748,781Accumulated
                deficit
            
            
            (11,232,567
            )Total
                stockholders' equity
            
            
            (1,134,026
            )Total
                Liabilities and Stockholders' equity
            
            $
            2,878,791




See
      accompanying notes to the consolidated financial
      statements.


F-2




**NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**For
      the Years Ended December 31, 2007 and 2006**





**2007**
            
            **2006****CONTRACT
                REVENUES**
            
            $
            10,048,309
            
            $
            8,318,957**COST
                OF SALES**
            
            
            7,928,255
            
            
            6,437,761**GROSS
                PROFIT**
            
            
            2,120,054
            
            
            1,881,196**OPERATING
                EXPENSES**Consulting
                and other compensation
            
            
            964,570
            
            
            520,346Salaries
                and related
            
            
            434,623
            
            
            351,410Selling,
                general and administrative
            
            
            1,053,486
            
            
            1,260,861**TOTAL
                OPERATING EXPENSES**
            
            
            2,452,679
            
            
            2,132,617**OPERATING
                LOSS**
            
            
            (332,625
            )
            
            (251,421
            )**OTHER
                INCOME (EXPENSES)**Gain
                on writeoff of accounts payable
            
            
            111,459
            
            
            41,595Derivative
                liability
            
            
            -
            
            
            1,494,761Interest
                income
            
            
            19,838
            
            
            27,308Liquidated
                damages
            
            
            (55,417
            )
            
            -Interest
                expense *
            
            
            (3,153,781
            )
            
            (2,363,187
            )**TOTAL
                OTHER EXPENSES**
            
            
            (3,077,901
            )
            
            (799,523
            )**LOSS
                BEFORE PROVISION FOR********INCOME
                TAXES**
            
            
            (3,410,526
            )
            
            (1,050,944
            )**PROVISION
                FOR INCOME TAXES**
            
            
            -
            
            
            800**NET
                LOSS**
            
            $
            (3,410,526
            )
            $
            (1,051,744
            )**Waived
                cumulative preferred dividends**
            
            
            **69,750**
            
            
            **287,875****Annual
                cumulative preferred dividends**
            
            
            **(83,675**
            **)**
            
            **(84,800**
            **)****NET
                LOSS APPLICABLE TO COMMON STOCKHOLDERS**
            
            $
            (3,424,451
            )
            $
            (848,669
            )**Basic
                net loss applicable to common stockholders********per
                common share**
            
            $
            (0.27
            )
            $
            (0.07
            )**Diluted
                net loss applicable to common stockholders********per
                common share**
            
            $
            (0.27
            )
            $
            (0.07
            )**Basic
                weighted average common shares outstanding**
            
            
            12,886,382
            
            
            11,332,289**Diluted
                weighted average common shares outstanding**
            
            
            12,886,382
            
            
            11,332,289




*
      Interest includes $649,865 additional penalties and interest on defaulted
      convertible note, debt discount amortization of $1,352,272 and deferred
      financing cost amortization of $358,296 for the year ended December 31, 2007,
      and debt discount amortization of $1,320,522, deferred financing cost
      amortization of $347,980, and $300,000 fair value of 1.5 million warrants
      granted as a consideration for waiver of accrued liquidated damages for the
      year
      ended December 31, 2006, all related to $3.8 million convertible notes issued
      in
      the first quarter of 2006.





See
      accompanying notes to the consolidated financial statements.


F-3


**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY
      (DEFICIT)**


**For
      the Years Ended December 31, 2007 and 2006**


**Conversion of****Preferred**
              **Stock,
                Series B**
            
            **Preferred**
              **Stock,
                Series C**
            
            **Preferred**
              **Stock,
                Series D**
            
            **Common
                Stock**
            
            ****
                **Additional**
            
            **Notes**
              **Receivable**
            
            
            
            
            
            
            
            **Total**
                **Stockholders'****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Paid
                In**
              **Capital**
            
            **From
                Stockholders**
            
            **Deferred**
              **Compensation**
            
            **Subscriptions**
              **Receivable**
            
            **(Accumulated**
              **Deficit)**
            
            **Equity**
              **(Deficit)****Balance,
                December 31, 2005**
            
            
            **-**
            
            **$**
            **-**
            
            
            **28,980**
            
            **$**
            **28,980**
            
            
            **11,640**
            
            **$**
            **291,000**
            
            
            **10,697,266**
            
            **$**
            **1,069,727**
            
            **$**
            **5,085,274**
            
            **$**
            **(505,639**
            **)**
            **$**
            **(254,717**
            **)**
            **$**
            **(462,500**
            **)**
            **$**
            **(6,959,447**
            **)**
            **$**
            **(1,707,322**
            **)**Isssuance
                of common stock for consulting services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            325,000
            
            
            32,500
            
            
            (167,750
            )
            
            
            
            
            146,936
            
            
            
            
            
            -
            
            
            11,686Issuance
                of stock in connection with convertible debt
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            30,000
            
            
            3,000
            
            
            6,584
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,584Beneficial
                Conversion Features and Other Debt Discounts
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,600,416
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,600,416Issuance
                of warrants for financing costs
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            455,200
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            455,200Issuance
                of stock for interest expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            269,318
            
            
            26,932
            
            
            143,318
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            170,250Warrants
                issued for Consulting
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            127,500
            
            
            
            
            
            (127,500
            )
            
            
            
            
            
            
            
            -Issuance
                of shares for extension of debt
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            105,000
            
            
            10,500
            
            
            37,800
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            48,300Issuance
                of shares for financing costs
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            250,000
            
            
            25,000
            
            
            132,500
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            157,500Conversion
                of Preferred Stock
            
            
            
            
            
            
            
            
            (1,200
            )
            
            (1,200
            )
            
            
            
            
            
            
            
            20,000
            
            
            2,000
            
            
            (800
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Amortization
                of deferred compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            219,012
            
            
            
            
            
            
            
            
            219,012Issuance
                of warrants for waiver of liquidated damages
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            300,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            300,000Stock
                Based Compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            360,000
            
            
            
            
            
            (316,800
            )
            
            
            
            
            
            
            
            43,200Cumulative
                Preferred Dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            203,075
            
            
            203,075Interest
                on Notes Receivable from stockholder
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (19,763
            )
            
            
            
            
            
            
            
            
            
            
            (19,763
            )Issuance
                of warrants for financing
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            29,090
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            29,090Misc.
                Adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            18,070
            
            
            1,807
            
            
            (1,807
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Reclassification
                of warrant liability
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            695,239
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            695,239Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,051,744
            )
            
            (1,051,744
            )**Balance,
                December 31, 2006**
            
            
            **-**
            
            **$**
            **-**
            
            
            **27,780**
            
            **$**
            **27,780**
            
            
            **11,640**
            
            **$**
            **291,000**
            
            
            **11,714,654**
            
            **$**
            **1,171,466**
            
            **$**
            **8,802,564**
            
            **$**
            **(525,402**
            **)**
            **$**
            **(333,069**
            **)**
            **$**
            **(462,500**
            **)**
            **$**
            **(7,808,116**
            **)**
            **$**
            **1,163,723**Isssuance
                of common stock for consulting services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,340,000
            
            
            134,000
            
            
            470,000
            
            
            
            
            
            (449,584
            )
            
            
            
            
            -
            
            
            154,416Issuance
                of stock for principal and interest due on convertible
                notes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            675,000
            
            
            67,500
            
            
            356,817
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            424,317Issuance
                of options for consulting costs
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            120,000
            
            
            
            
            
            (120,000
            )
            
            
            
            
            
            
            
            -Conversion
                of Preferred Stock
            
            
            
            
            
            
            
            
            (900
            )
            
            (900
            )
            
            
            
            
            
            
            
            15,000
            
            
            1,500
            
            
            (600
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Amortization
                of deferred compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            270,931
            
            
            
            
            
            
            
            
            270,931Stock
                Based Compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            296,801
            
            
            
            
            
            
            
            
            296,801.Cumulative
                Preferred Dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (13,925
            )
            
            (13,925
            )Additional
                Notes Receivable from stockholder
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Interest
                on Notes Receivable from stockholder
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (19,763
            )
            
            
            
            
            
            
            
            
            
            
            (19,763
            )Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,410,526
            )
            
            (3,410,526
            )**Balance,
                December 31, 2007**
            
            
            -
            
            $
            -
            
            
            26,880
            
            $
            26,880
            
            
            11,640
            
            $
            291,000
            
            
            13,744,654
            
            $
            1,374,466
            
            $
            9,748,781
            
            $
            (545,165
            )
            $
            (334,921
            )
            $
            (462,500
            )
            $
            (11,232,567
            )
            $
            (1,134,025
            )




See
      accompanying notes to the consolidated financial statements.


F-4




**NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      the Years Ended December 31, 2007 and 2006**




**2007**
            
            **2006**Cash
                flows from operating activities:Net
                loss
            
            $
            (3,410,526
            )
            $
            (1,051,744
            )Adjustments
                to reconcile net loss to net cash  used in operating
                activities:Depreciation
                and amortization of property and equipment
            
            
            127,397
            
            
            146,563Gain
                on writeoff of accounts payable
            
            
            111,459
            
            
            -Gain
                on forgiveness of debt from waiver of liquidated damages
            
            
            -
            
            
            259,185Stock
                issued for interest expense
            
            
            -
            
            
            170,250Stock
                options grants and amortization of equity instruments
            
            
            316,800
            
            
            43,200Amortization
                of debt discount
            
            
            -
            
            
            1,320,522Amortization
                of deferred consulting fees
            
            
            250,932
            
            
            236,435Amortization
                of deferred financing cost
            
            
            358,295
            
            
            347,988Amortization
                of BCF and Debt discount on convertible notes payable
            
            
            1,352,274
            
            
            -Bad
                debt expense (credit)
            
            
            158,700
            
            
            115,158Derivative
                liability income
            
            
            -
            
            
            (1,494,761
            )Estimated
                fair market value of common stock issued for consulting services
                and
                related change in fair value
            
            
            154,416
            
            
            (19,987
            )Interest
                income on notes receivable from stockholders
            
            
            (19,763
            )
            
            (19,763
            )Changes
                in operating assets and liabilities:Contracts
                receivable
            
            
            (294,015
            )
            
            (151,150
            )Inventories
            
            
            234,075
            
            
            (191,235
            )Costs
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            
            589,871
            
            
            (742,913
            )Prepaid
                expenses and other current assets
            
            
            6,022
            
            
            (50,380
            )Accounts
                payable and accrued expenses
            
            
            1,196,064
            
            
            (517,620
            )Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            (364,886
            )
            
            (48,473
            )Net
                cash provided by (used in) in operating activities
            
            
            767,115
            
            
            (1,642,740
            )Cash
                flows from investing activities:Acquisition
                of property and equipment
            
            
            (32,225
            )
            
            -Net
                cash used in investing activities
            
            
            (32,225
            )
            
            -Cash
                flows from financing activities:Bank
                overdraft
            
            
            190
            
            
            (8,877
            )Proceeds
                of issuance of notes payable
            
            
            -
            
            
            3,800,000Restricted
                cash
            
            
            123,898
            
            
            (123,898
            )Payment
                of financing costs
            
            
            -
            
            
            (422,500
            )Principal
                payments on notes payable
            
            
            (630,567
            )
            
            (1,548,667
            )Net
                cash (used in) provided by financing activities
            
            
            (506,479
            )
            
            1,696,058Net
                increase in cash
            
            
            228,411
            
            
            53,318Cash
                at beginning of period
            
            
            53,318
            
            
            -Cash
                at end of period
            
            $
            281,729
            
            $
            53,318Supplemental
                disclosure of non-cash investing and financing activities:Debt
                discount on note payable extension
            
            $
            -
            
            $
            10,500BCF
                and Debt discount balance on convertible notes payable
            
            $
            1,175,506
            
            $
            3,843,300Accrued
                cumulative dividends on preferred stock
            
            $
            83,675
            
            $
            84,800Cumulative
                preferred dividends waived
            
            $
            69,750
            
            $
            287,875Accrued
                deffered financing cost
            
            $
            -
            
            $
            60,000Conversion
                of preferred stock to common stock
            
            $
            1,500
            
            $
            2,000Common
                stock issued for settlement and penalties on notes payable
            
            $
            67,500
            
            $
            310,000Reclassification
                of warrant liability to equity
            
            $
            -
            
            $
            695,239Common
                stock and warrants issued for deferred financing cost
            
            $
            -
            
            $
            641,790




See
      accompanying notes to the consolidated financial statements.




F-5





**NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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





***Organization
      and Nature of Operations***





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





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





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





***Principles
      of Consolidation***





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





***Going
      Concern***





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern, which contemplates, among other
      things, the realization of assets and satisfaction of liabilities in the normal
      course of business. At
      of
      December 31, 2007, the Company has an accumulated deficit of approximately
      $11,233,000, working capital deficit of approximately $1,425,154 and was also
      in
      default on its CAMOFI convertible debt (See Note 6). These factors, among
      others, raise substantial doubt about the Company's ability to continue as
      a
      going concern. The Company intends to fund operations through anticipated
      increased sales along with debt and equity financing arrangements which
      management believes may be insufficient to fund its capital expenditures,
      working capital and other cash requirements for the year ending December 31,
      2008. Therefore, the Company will be required to seek additional funds to
      finance its long-term operations. The successful outcome of future activities
      cannot be determined at this
      time
      and there is no assurance that if achieved, the Company will have sufficient
      funds to execute its intended business plan or generate positive operating
      results.





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


· The
      Company continues its aggressive program for selling inventory.


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


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




F-6




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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





***Going
      Concern*** (continued)





The
      consolidated financial statements do not include any adjustments to the carrying
      amounts related to recoverability and classification of assets 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 financial institution for up to
      $100,000. At times, cash may be in excess of the FDIC insured limit of $100,000.
      The Company had approximately $313,000 of uninsured bank balances at December
      31, 2007.





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




The
      Company maintains an allowance for doubtful accounts for balances that appear
      to
      have specific collection issues. The collection process is based on the age
      of
      the invoice and requires attempted contacts with the customer at specified
      intervals. If, after a specified number of days, the Company has been
      unsuccessful in its collection efforts, a bad debt allowance is recorded for
      the
      balance in question. Delinquent accounts receivable are charged against the
      allowance for doubtful accounts once uncollectibility has been determined.
      The
      factors considered in reaching this determination are the apparent financial
      condition of the customer and the Company’s success in contacting and
      negotiating with the customer. If the financial condition of the Company’s
      customers were to deteriorate, resulting in an impairment of ability to make
      payments, additional allowances may be required.





During
      the year ended December 31, 2007, sales to three customers totaled approximated
      36% of net sales. No other single customer had net sales of more than 10% of
      total net sales for the year ended December 31, 2007. Management reviews the
      collectibility of contracts receivables periodically and believes that the
      allowance for doubtful accounts for the year ended December 31, 2007 is
      $251,000.


Customer
              
              %
                  of Net Sales
              
              %
                  of ReceivableA
              
              
              10
              
              
              3B
              
              
              16
              
              
              12C
              
              
              10
              
              
              35Total
              
              
              36
              
              
              50


F-7





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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





***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***





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





***Cash
      and Cash Equivalents***





The
      Company considers all highly liquid fixed income investments with maturities
      of
      three months or less at the time of purchase, to be cash equivalents. The
      Company had no cash equivalents at December 31, 2007.





***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 (see
      table
      below). 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, 2007, the Company had inventory reserves
      approximating $286,000.


Inventory cost at
                12/31/2007
                (thousands)
              
              Direct Labor
                (thousands)
              
              Direct Material
                (thousands)
              
              Subcontractors
                (thousands)
              
              Allocation of
                Indirect Overhead
                (thousands)$
              1,172
              
              $
              86
              
              $
              615
              
              $
              61
              
              $
              410


F-8




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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





***Property
      and Equipment***





Property
      and equipment are recorded at cost and are depreciated using the straight-line
      method over the estimated useful lives of the related assets ranging from three
      to five years. Equipment under capital lease obligations are depreciated over
      the shorter of the estimated useful life or the term of the lease. Maintenance
      and repairs are charged to expense as incurred. Significant renewals and
      betterments are capitalized. At the time of retirement or other disposition
      of
      property and equipment, the cost and related accumulated depreciation are
      removed from the accounts and any resulting gain or loss is reflected in the
      consolidated statement of operations. For the years ended December 31, 2007
      and
      2006, the Company incurred depreciation expense of approximately $127,000 and
      $147,000, respectively.




***Long-Lived
      Assets***





The
      Company accounts for long-lived asset impairments under 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.”* (“SFAS
      No. 144”). SFAS No. 144 requires a three-step approach for recognizing and
      measuring the impairment of assets to be held and used. The Company recognizes
      impairment losses on long-lived assets used in operations when indicators of
      impairment are present and the undiscounted cash flows estimated to be generated
      by those assets are less than the assets’ carrying amounts. The impairment loss
      is measured by comparing the fair value of the asset to its carrying amount.
      Fair value is estimated based on discounted future cash flows. Assets to be
      sold
      must be stated at the lower of the assets’ carrying amount or fair value and
      depreciation is no longer recognized. The Company believes that no impairment
      of
      property and equipment exists at December 31, 2007.




***Revenue
      Recognition***




The
      Company's revenues consist primarly of contracts with vendors. The Company
      uses
      the percentage-of-completion method of accounting to account for long-term
      contracts and, therefore, takes into account the cost, estimated earnings and
      revenue to date on fixed-fee contracts not yet completed. The
      percentage-of-completion method is used because management considers total
      cost
      to be the best available measure of progress on the contracts. Because of
      inherent uncertainties in estimating costs, it is at least reasonably possible
      that the estimates used will change within the near term. The Company recognizes
      revenue on contracts pursuant to SOP 81-1.




For
      revenues from stock inventory the Company follows Staff Accounting Bulletin
      ("SAB") No. 104, " *Revenue
      Recognition* "
      outlines the basic criteria that must be met to recognize revenue and provides
      guidance for presentation of revenue and for disclosure related to revenue
      recognition policies in financial statements filed with the Securities and
      Exchange Committee.


F-9





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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





***Revenue
      Recognition*** (continued)




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




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




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




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




***Shipping
      and Handling Costs***




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





***Warranty***





The
      Company provides a warranty on certain products sold. Estimated future warranty
      obligations related to certain products and services are provided by charges
      to
      operations in the period in which the related revenue is recognized. At December
      31, 2007, the warranty obligation was immaterial to 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 $28,000 and $38,000 for the years ended December 31, 2007 and
      2006, respectively.




F-10




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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





***Research
      and Development Costs***





Research
      and development costs are expensed as incurred. During the years ended December
      31, 2007 and 2006, the Company did not incur any research and development costs.





***Income
      Taxes***




Income
      taxes are accounted for in accordance with SFAS No. 109, *Accounting
      for Income Taxes* (“SFAS
      109”). This statement requires the recognition of deferred tax assets and
      liabilities to reflect the future tax consequences of events that have been
      recognized in the Company’s financial statements or tax returns. Measurement of
      the deferred items is based on enacted tax laws. In the event the future
      consequences of differences between financial reporting bases and tax bases
      of
      the Company’s assets and liabilities result in a deferred tax asset,
      SFAS 109 requires an evaluation of the probability of being able to realize
      the future benefits indicated by such assets. A valuation allowance related
      to a
      deferred tax asset is recorded when it is more likely than not that some portion
      or all of the deferred tax asset will not be realized. A full valuation
      allowance for deferred tax assets has been provided at December 31, 2007
      and 2006. The valuation allowance approximates $4,921,000 and $4,527,000 for
      the
      years ended December 31, 2007 and 2006, respectively. (See Note 7)





***Basic
      and Diluted Loss Per Common Share***





Basic
      net
      earning (loss) per share is computed by dividing net income (loss) by the
      weighted average number of common shares outstanding for the period. Diluted
      net
      income (loss) per share is computed by dividing net loss by the weighted average
      number of common shares and dilutive common stock equivalents outstanding for
      each respective year. Common stock equivalents, representing convertible
      Preferred Stock, convertible debt, options and warrants totaling approximately
      6,192,972 and 6,026,490 shares at December 31, 2007 and 2006 are not
      included in the diluted loss per share as they would be anti-dilutive.
      Accordingly, diluted and basic loss per common share are the same for 2007
      and
      2006.





***Comprehensive
      Income***





In
      June 1997, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 130, “Reporting Comprehensive Income” (“SFAS 130”). SFAS 130 requires
      that total comprehensive income (loss) be disclosed with equal prominence
      as net income (loss). The Company’s comprehensive net loss is equal to its net
      loss for both years presented.


F-11


NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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





***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 ***.***





***Stock
      Based Compensation***




Effective
      January 1, 2006, we adopted the fair value method of accounting for employee
      stock compensation cost pursuant to SFAS No. 123(R), *Share-Based
      Payments* .
      Prior
      to that date, the Company used the intrinsic value method under Accounting
      Policy Board Opinion No. 25 to recognize compensation cost.




Under
      the
      modified prospective method of adoption for SFAS No. 123-R, the compensation
      cost recognized by the Company beginning January 1, 2006 includes compensation
      cost for all equity incentive awards granted subsequent to January 1, 2006,
      based on the grant-date fair value estimated in accordance with the provisions
      of SFAS No. 123-R. The Company had no equity incentive awards granted prior
      to
      January 1, 2006 that were not yet vested. Share-based compensation expense
      of $316,800 and $43,200 was recognized in the accompanying consolidated
      statements of operations for the years ended December 31, 2007 and 2006,
      respectively.





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





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





On
      November 13, 2006, the Company granted 2,000,000 options to key employees.
      At
      December 31, 2007, the Company had 1,050,000 options available for future
      issuance under their equity compensation plans.





There
      are
      no effects of share-based compensation resulting from the application of SFAS
      No. 123-R to options granted outside of the Company's Stock Option Plan for
      the
      year ended December 31, 2007 and 2006. Share-based compensation recognized
      as a
      result of the adoption of SFAS No. 123-R as well as pro forma disclosures
      according to the original provisions of SFAS No. 123 for periods prior to the
      adoption of SFAS No. 123-R use the Black Scholes option pricing model for
      estimating fair value of options granted.




F-12




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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


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





In
      accordance with SFAS No. 123-R, the Company’s policy is to adjust share-based
      compensation on a quarterly basis for changes to the estimate of expected award
      forfeitures based on actual forfeiture experience. The effect of adjusting
      the
      forfeiture rate for all expense amortization after December 31, 2007 is
      recognized in the period the forfeiture estimate is changed.





At
      December 31, 2007, the Company estimated (using the Black Scholes pricing model)
      the fair value of options granted and no variance has been found. Therefore,
      the
      effect of forfeiture adjustments at the period ended December 31, 2007 was
      not
      applicable.




Options
      outstanding that have vested and are expected to vest as of December 31, 2007
      are as follows:





WeightedWeighted
            
            AverageAverage
            
            Remaining
            
            AggregateNumber of
            
            Exercise
            
            Contractual
            
            IntrinsicShares
            
            Price
            
            Term in Years
            
            Value (1)Vested
            
            
            3,150,000
            
            $
            0.22
            
            
            1.75
            
            $
            —Expected
                to vest (2)
            
            
            800,000
            
            $
            0.15
            
            
            0.40
            
            $
            —Total
            
            
            3,950,000
            
            
            
            
            
            
            
            $
            137,500




(1)
            These
                amounts represent the difference between the exercise price and $0.22,
                the
                closing market price of the Company's common stock on December 31,
                2007 as
                quoted on the Over-the-Counter Bulletin Board under the symbol "NCNC.OB"
                for all in-the-money options
                outstanding.




(2)
            The
                800,000 options are expected to become fully vested on March 14,
                2008 and
                are valued at $120,000 based on the stock market price of the shares
                at
                the contract date.




F-13


NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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


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




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





Outstanding OptionsShares
            
            
            
            Weighted
            
            AggregateAvailable
            
            Number of
            
            Average
            
            Intrinsicfor Grant
            
            Shares
            
            Exercise Price
            
            Value (1)December
                31, 2006
            
            
            1,750,000
            
            
            3,250,000
            
            $
            0.25
            
            $
            —Grants
            
            
            800,000
            
            
            800,000
            
            $
            0.15Exercises
            
            
            —
            
            
            —
            
            
            —Cancellations
            
            
            100,000
            
            
            100,000
            
            $
            1.10December
                31, 2007
            
            
            1,050,000
            
            
            3,950,000
            
            $
            0.20
            
            $
            79,000Options
                exercisable at:December
                31,
                2006
            
            
            
            
            
            1,250,000
            
            $
            0.32December
                31,
                2007
            
            
            
            
            
            1,250,000
            
            $
            0.20




(1)
      Represents the added value as difference between the exercise price and the
      closing market price of the Company's common stock at the end of the reporting
      period (as of December 31, 2006 and December 31, 2007, the market price of
      the
      Company's common stock was $0.21 and $0.22, respectively).




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




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




F-14




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




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




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




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




***Deferred
      Financing Costs***




Direct
      costs of securing debt financing are capitalized and amortized over the term
      of
      the related debt. When a loan is paid in full, any unamortized financing costs
      are removed from the related accounts and charged to operations. During the
      years ended December 31, 2007 and 2006, the Company amortized approximately
      $358,000 and $348,000, respectively, to interest expense.




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




In
      2006,
      the Company granted warrants in connection with the issuance of certain notes
      payable. Under Accounting Principles Board Opinion No. 14, " *Accounting
      for Convertible Debt and Debt Issued With Stock Purchase
      Warrants* ,"
      the
      relative estimated fair value of such warrants represents a discount from the
      face amount of the notes payable. Such discounts are amortized to interest
      expense over the term of the notes.




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




The
      convertible feature of certain notes payable provides for a rate of conversion
      that is below market value. Such feature is normally characterized as a
      " *Beneficial
      Conversion Feature* "
      ("BCF"). Pursuant to EITF Issue No. 98-5, " *Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratio* "
      and
      EITF No. 00-27, " *Application
      of EITF Issue No. 98-5 To Certain Convertible Instruments* ,"
      the
      estimated fair value of the BCF is recorded in the consolidated financial
      statements as a discount from the face amount of the notes. Such discounts
      are
      amortized to interest expense over the term of the notes. During the years
      ended
      December 31, 2007 and 2006, the Company amortized approximately $1,352,000
      and
      $1,320,000, respectively, to interest expense.




***Classification
      Of Warrant Obligation***





In
      connection with the issuance of the 12% Senior Secured Convertible Notes on
      February 28, 2006 (See Note 6), the Company had an obligation to file
      registration statements covering the Registrable Securities, as defined in
      the
      Registration Rights Agreement Amended. The obligation to file the registration
      statement met the criteria of an embedded derivative to be bifurcated pursuant
      to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
      as amended. The Registration Rights Agreement require the Company to register
      for resale the common shares underlying the warrants, and as a result, the
      embedded derivative associated with this warrant obligation did not meet the
      scope exception of paragraph 11(a) of SFAS No. 133 and the warrants were
      initially treated as liabilities.




F-15




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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




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





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





***Fair
      Value of Financial Instruments***





SFAS
      107, *"Disclosures
      About Fair Value of Financial Instruments,"* requires
      disclosure of fair value information about financial instruments when it is
      practicable to estimate that value. The carrying amount of the Company's cash
      (bank overdraft), contracts receivable, accounts payable and accrued expenses,
      and notes payable approximates their estimated fair values because related
      interest rates offered to the Company approximate current offered rates. In
      the
      opinion of management, the fair value of notes receivable from stockholders
      cannot be estimated without incurring excessive costs; for that reason, the
      Company has not provided such disclosure.





***Significant
      Recent Accounting Pronouncements***





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


F-16


NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





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





***Significant
      Recent Accounting Pronouncement (continued)***





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




In
      December 2007, the FASB issued SFAS No. 141(R), *Business
      Combinations* .
      SFAS
      No. 141(R) retains the fundamental requirements in SFAS No. 141, *Business
      Combinations* ,
      that
      the acquisition method of accounting be used for all business combinations
      and
      for an acquirer to be identified for each business combination. SFAS No. 141(R)
      requires an acquirer to recognize the assets acquired, the liabilities assumed,
      and any noncontrolling interest in the acquiree at the acquisition date,
      measured at their fair values as of that date, with limited exceptions specified
      in SFAS No. 141(R). In addition, SFAS No. 141(R) requires acquisition costs
      and
      restructuring costs that the acquirer expected but was not obligated to incur
      to
      be recognized separately from the business combination, therefore, expensed
      instead of part of the purchase price allocation. SFAS No. 141(R) will be
      applied prospectively to business combinations for which the acquisition date
      is
      on or after the beginning of the first annual reporting period beginning on
      or
      after December 15, 2008. Early adoption is prohibited. The Company expects
      to
      adopt SFAS No. 141(R) to any business combinations with an acquisition date
      on
      or after January 1, 2009.





In
      December 2007, the FASB issued SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements, an amendment to ARB No.
      51* .
      SFAS
      No. 160 changes the accounting and reporting for minority interests, which
      will
      be recharacterized as noncontrolling interests and classified as a component
      of
      equity. SFAS No. 160 is effective for fiscal years, and interim periods within
      those fiscal years, beginning on or after December 15, 2008. Early adoption
      is
      prohibited. The Company is currently evaluating the impact SFAS No. 160 may
      have
      on its consolidated financial statements.





Other
      recent accounting pronouncements issued by the FASB (including its Emerging
      Issues Task Force, or “EITF”), the AICPA, and the SEC did not or are not
      believed by management to have a material impact on the Company’s present or
      future consolidated financial statements.





F-17




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





**2.
      CONTRACTS IN PROGRESS**





Contracts
      in progress at December 31, 2007, which include completed contracts not
      completely billed, approximate:





Cumulative
                costs to date
            
            $
            7,007,000Cumulative
                gross profit to date
            
            
            7,893,000Cumulative
                revenue earned
            
            
            14,900,000Less
                progress billings to date
            
            
            (14,350,000
            )Net
                under billings
            
            $
            550,000





The
      following approximate amounts are included in the accompanying consolidated
      balance sheet under these captions as of December 31, 2007:





Costs
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            $
            571,000Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            (88,000
            )Net
                under billings
            
            $
            483,000





**3.
      PROPERTY AND EQUIPMENT**





Property
      and equipment approximate the following at December 31, 2007:


Machinery
                and equipment
            
            $
            907,000Leased
                vehicles
            
            
            109,000Computer
                equipment
            
            
            20,000Furniture
                and fixture
            
            
            4,0001,040,000Less
                accumulated depreciation and amortization
            
            
            (771,000
            )$
            269,000


F-18


NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





**4.
      RELATED PARTY TRANSACTIONS**





At
      December 31, 2007, the Company had loans to two stockholders approximating
      $545,000, including accrued interest. The loans accrue interest at 5% and are
      due on demand. The Company has included the notes receivable from stockholders
      in stockholders’ equity (deficit) as such amounts have not been repaid during
      2007 or 2006. For each of the years ended December 31, 2007 and 2006, total
      interest income from notes receivable from stockholders approximated $20,000.





**5.
      NOTES PAYABLE**





During
      the year ended December 31, 2001, the Company entered into a note payable with
      a
      third party for $215,000. The note accrued interest at a fixed rate of 15%
      per
      annum and matured in March 2002. The note was secured by certain assets of
      the
      Company, as defined, and was in default at December 31, 2004. During 2005,
      the
      Company and the note holder executed a mutual agreement to fully settle the
      debt
      whereby by the Company agreed to make fifteen monthly installments of $12,000
      (totaling $180,000) beginning January 2006 and to issue 100,000 shares of
      restricted common stock valued at $62,000 (estimated based on the market price
      of the stock on the date of the agreement) to the holder. Accrued interest
      on
      the note totaled approximately $116,000 on the date of the transaction. As
      a
      result of the effective reduction in principal balance of $35,000, the
      forgiveness of approximately $116,000 of accrued interest and the issuance
      of
      restricted common stock valued at $62,000, the Company recorded a gain on
      forgiveness of notes payable totaling approximately $89,000 for the year ended
      December 31, 2005. During the year ended December 31, 2006, the Company made
      cash payments of $132,000 to reduce the principal balance on the secured note
      payable. As of December 31 2006, the balance of the note was $48,000. During
      the
      year ended December 31, 2007, the Company made cash payments of $48,000 to
      pay
      off the principal balance on the secured note payable. As of December 31 2007,
      there is no balance on the note.





On
      April
      17, 2007, the Company entered into a note payable agreement with a finance
      company for the purchase of three vehicles. The note accrues interest at 8.49
      %
      per annum, and matures in April 2010. Monthly principal and interest payments
      are $2,499. This note is secured by the three vehicles.





At
      December 31, 2007, maturities of notes payable for the next five years are
      as
      follows for the years ending December 31





2008
            
            $
            25,5972009
            
            
            27,8562010
            
            
            9,804Total
            
            $
            63,257





F-19




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**6.
      CONVERTIBLE DEBT**




***Motivated
      Minds Convertible Debt***




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





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





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





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





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




F-20




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**6.
      CONVERTIBLE DEBT** (continued)




***Motivated
      Minds Convertible Debt (continued)***




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




***CAMOFI
      Convertible Debt***




On
      February 28, 2006, the Company entered into a Securities Purchase Agreement
      (“Note B”) with CAMOFI Master, LDC (“CAMOFI”), whereby CAMOFI agreed to
      purchase, up to $5,000,000 aggregate principal amount of 12% Senior Secured
      Convertible Notes, due February 28, 2009 (up to $3,500,000 to be purchased
      at
      the closing and up to an additional $1,500,000 to be purchased pursuant to
      an
      Additional Investment Right), secured by a first priority lien on all assets
      of
      the Company and its current and future subsidiaries (including a pledge of
      the
      shares of the Company's current and future Subsidiaries). Note B is convertible
      into 5,555,556 shares of the Company's common stock at a fixed price of $0.63
      at
      any time at CAMOFI’s option. In connection with Note B, the Company issued
      3,476,190 warrants at an exercise price of $0.63 to CAMOFI that
      expire on February 28, 2013. The
      warrants vested and became fully exercisable on the issuance date. In accordance
      with EITF Issue No. 98-5 and APB No. 14, the Company allocated the $3,500,000
      debt proceeds between the relative fair values of the warrants and the fair
      value of the beneficial conversion feature (BCF”). Pursuant to EITF Issue Nos.
      98-5 and 00-27, the conversion feature of Note B provides for a rate of
      conversion that is below market value. The resulting BCF and other debt discount
      resulting from the accounting for the warrants (see bellow) on Note B totaled
      $3,500,000 and are being amortized on a straight-line basis to interest expense
      over the life of the loan. As of December 31, 2007, approximately $1,352,000
      was
      amortized to interest expense. The
      Company is currently in default on this loan. This loan is classified as a
      current liability, and is due on demand.





**Accounting
      for the Warrants**





Under
      GAAP, accounting for certain warrants can be significantly affected by the
      terms
      of a registration rights penalty. In the CAMOFI debt financing transaction,
      once
      the registration statement required by the registration rights agreement (the
      "Agreement") has been declared effective by the SEC, the Company's liability
      for
      the registration rights penalty will cease if, among other conditions described
      in the agreement, the registration statement's effectiveness is maintained
      for
      the time period defined in the Agreement and the Company otherwise complies
      with
      SEC Rule 415 (which governs continuous offerings) during the time period set
      forth in the Agreement. However, the Agreement limits the registration rights
      penalty to a specific time period only when the continuing requirements of
      the
      agreement have been met, and it does not explicitly limit the maximum dollar
      amount of any such penalty.




F-21




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**6.
      CONVERTIBLE DEBT** (continued)




***CAMOFI
      Convertible Debt (continued)***





**Accounting
      for the Warrants** (continued)





Based
      on
      the preceding paragraph, the registration rights penalty could exceed the
      difference between the fair value of a registered share of the Company's common
      stock and the estimated fair value of an unregistered share. In addition, in
      order for the warrants to be classified in equity it must meet all the criteria
      outlined in EITF Issue No. 00-19, as a result of the original warrant agreement
      the ability to register a company's securities was not within the issuer's
      control, furthermore, since payment of a penalty in an indeterminate amount
      is
      considered an uneconomic settlement alternative, EITF Issue No. 00-19 requires
      the Company to assume that the warrant will be net-cash settled even though
      the
      warrant agreement does not include any such provision. Therefore, the warrants
      (which are an embedded derivative) were separated from the convertible debt
      instrument, reported as a liability, and measured at estimated fair
      value.





The
      fair
      value of the warrants in the debt financing transaction, based on the
      Black-Scholes option-pricing model, was estimated at $2,190,000 on the
      measurement date of February 28, 2006. Such amount was recorded as the
      derivative warrant liability with a corresponding entry to debt discount against
      the face of Note B. Such discount is being amortized to interest expense (using
      the effective interest method) over the three-year term of the note. The Company
      recorded interest expense on such discount of approximately $672,000 and
      $608,000 during the years ended December 31, 2007 and 2006, respectively, in
      the
      accompanying consolidated statements of operations.





**Reclassification
      of the Warrant Obligation**





On
      December 19, 2006, the Company entered into an Amended and Restated Registration
      Rights Agreement (the “Agreement”) with CAMOFI. Pursuant to the Amendment the
      Company agreed to file registration statements to cover the resale of the shares
      issuable upon conversion of the Note B and warrants as follows:





i)
      on or
      before January 31, prepare and file with the SEC a Registration Statement
      covering the resale of all common Stock issuable upon conversion of the 12%
      Senior Secured Convertible Note dated February 28, 2009, up to 33% of our issued
      and outstanding stock;





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


F-22







**NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**6.
      CONVERTIBLE DEBT**(continued)




**Reclassification
      of the Warrant Obligation** (continued)





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





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




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





As
      a
      result of the amended registration rights agreement and the limit of 10% placed
      on the amount of liquidated damages to be paid if the Company does not have
      an
      effective registration statement in accordance with the amended registration
      rights agreement, and since the warrant agreement provides the option of
      settling the warrant obligation by issuing unregistered shares using a cashless
      exercise feature in the event that there is no effective registration statement
      within the required time period, the warrants met all the criteria outlined
      in
      EITF 00-19 to be classified as equity. Accordingly, on December 19, 2006, the
      date of the amended agreement, the Company re-evaluated the estimated fair
      value
      of the warrant liability at approximately $626,000 using a Black Scholes option
      pricing model. The decrease in fair value totaling approximately $1,500,000
      was
      recorded as a credit to derivative liability expense in the consolidated
      statements of operations and the warrants were reclassified to additional
      paid-in capital.





**Other
      Transactions**





On
      May 1,
      2007, the Company entered into a second Amended and Restated Registration Rights
      Agreement (the “Second Amended and Restated Agreement”) with CAMOFI. Pursuant to
      Section 2 of the Second Amended and Restated Agreement, the Company agreed
      to
      file, in 30 days from the date thereof, a Registration Statement to register
      up
      to 33% of our issued and outstanding stock covering the resale of common stock
      issuable upon conversion of the 12% Senior Secured Convertible Note dated
      February 28, 2009, and to use the company’s best efforts to have the
      registration statements mentioned above declared effective 90 days after the
      date of filing. In addition, the Company agreed to use its best efforts to
      keep
      the registration statement continuously effective under the Securities Act
      until
      all the securities covered by such registration statement have been sold or
      may
      be sold without volume restriction pursuant to Rule 144(k). Pursuant to the
      Second Amended and Restated Registration Rights Agreement, CAMOFI agreed to
      waive any liquidated damages accrued prior to the date of the Amendment.
      However, the failure to timely file the Registration Statement and have the
      registration statement declared effective, will subject the Company to
      liquidated damages equal to 1.5% of the outstanding principal of the Notes
      for
      any registrable securities then held by CAMOFI for the first 30 days (or part
      thereof) after the default date and an additional 1.5% for any subsequent 30-day
      period (or part thereof), thereafter or a maximum of 10% of the remaining
      balance of the CAMOFI Notes. If the company fails to pay any partial liquidated
      damages within seven days after the date payable, the Company will be required
      to pay interest thereon at a rate of 20% per annum (or such lesser maximum
      amount that is permitted to be paid by applicable law) to CAMOFI, accruing
      daily
      from the date such partial liquidated damages are due until such amounts, plus
      all such interest thereon, are paid in full.




F-23







**NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**6.
      CONVERTIBLE DEBT** (continued)




**Other
      Transactions** (continued)




On
      July
      18, 2007, CAMOFI agreed to waive their right to require the Company to register
      up to 33% of our issued and outstanding stock and consented to the inclusion
      of
      3,000,000 shares or 27% of the public float of the Company in this registration
      statement. Therefore, the Company’s obligation pursuant to the Second Amended
      and Restated Agreement and July 18, 2007 waiver, was to file one
      registration statement to register up to 3,000,000 shares or 27% of the public
      float of the Company’s common stock. During
      November 2007, the Company filed an Amended Registration Statement which was
      declared effective on November 14, 2007.





In
      connection with the December 19, 2006 Amended and Restated Registration Rights
      Agreement, the Company issued to CAMOFI warrants to purchase 1,500,000 shares
      of
      our common stock, at an exercise price of $0.35 for a term of seven
      years .  Per
      EITF
      96-18, Since the warrants are exercisable immediately, and the services (waiver
      of liquidated damages accrued as a result of the Company’s failure to register
      the warrants issued with the debt) were complete at the same time, the value
      of
      the services is deemed to be fair value of the warrants on the measurement
      date,
      which is the date of the transaction. The warrants
      were valued at $300,000, using a Black-Scholes option pricing model on the
      dates
      of grant and were recorded as interest expense in the Company’s consolidated
      financial statements.





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




F-24




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





**6.
      CONVERTIBLE DEBT** (continued)





**Other
      Transactions** (continued)





The
      total
      financing costs incurred in connection with Note B totaled approximately
      $1,065,000, of which approximately $358,000 and $289,000 were amortized to
      interest expense during the years ended December 31, 2007 and 2006,
      respectively. The remaining deferred financing costs approximate $418,000 and
      $776,000 at December 31, 2007 and 2006, respectively, of which approximately
      $358,000 is current.





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





**The
      Conversion Option**





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





**Intrinsic
      Value Accounting for the BCF**





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





The
      difference between the effective conversion price and the fair value of the
      debt
      at the commitment date of $0.236 per share resulted in a "theoretical"
      beneficial conversion feature of approximately $2,190,000. Since the BCF cannot
      exceed the proceeds allocated to the debt, the Company recorded a debt issuance
      discount on Note B of $1,310,000 which is being amortized to interest expense
      (using the effective interest method) over the three-year term of the note.
      The
      Company recorded interest expense on such BCF of approximately $402,000 and
      $364,000 during the year ended December 31, 2007 and 2006, respectively, in
      the
      accompanying consolidated statements of operations.




F-25







NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





**6.
      CONVERTIBLE DEBT** (continued)





**Total
      Debt Discounts**





The
      remaining BCF and debt discount balances on Note B associated with the
      conversion option of the debt and the warrants, respectively, totaled
      approximately $1,175,000 at December 31, 2007 and is presented net of the
      $2,217,000 principal balance of Note B in the consolidated balance
      sheet.





**7.
      INCOME TAXES**





During
      2007 and 2006, the provision for taxes differs from the amounts computed by
      applying the U.S. Federal income tax rate of 34% to income before provision
      for
      taxes as a result of the following:





**2007**
            
            **2006**Computed
                “expected” tax (benefit) expense
            
            $
            (1,146,000
            )
            $
            (367,000
            )Addition
                to (reduction) in income taxes resulting from:State
                income taxes, net of federal benefit
            
            
            (183,000
            )
            
            (65,000
            )Change
                in deferred tax asset valuation allowance
            
            
            1,222,000
            
            
            416,000Non-deductible
                expenses
            
            
            108,600
            
            
            16,800$
            108,600
            
            $
            800





The
      effects of temporary differences that give rise to significant portions of
      deferred tax assets and liabilities at December 31, 2007 and 2006 are presented
      below:




**2007**
            
            **2006**Deferred
                tax assets:Tax
                net operating loss carryforwards
            
            $
            5,728,000
            
            $
            4,600,000Warrant
                liability
            
            
            (598,000
            )
            
            (584,000
            )Accrued
                inventory reserve
            
            
            114,000
            
            
            114,000Accrued
                expenses
            
            
            141,000
            
            
            397,000Total
                gross deferred tax asset
            
            
            4,921,000
            
            
            4,527,000Less
                valuation allowance
            
            
            (4,921,000
            )
            
            (4,527,000
            )Total
                net deferred tax asset
            
            $
            –
            
            $
            –





Based
      upon the Company’s history of continuing operating losses, realization of its
      deferred tax assets does not meet the “more likely than not” criteria under SFAS
      No. 109 and, accordingly, a valuation allowance for the entire deferred tax
      asset amount has been recorded.




F-26







NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**





**7.
      INCOME TAXES** (continued)





The
      valuation allowance increased by $858,000 and $387,000 during the years ended
      December 31, 2007 and 2006, respectively. The current provision for income
      taxes
      for the years ended December 31, 2007 and 2006 is not significant and due
      primarily to certain state taxes.





At
      December 31, 2007, the Company had net tax operating loss carryforwards for
      federal and state income tax purpose of approximately $15.4 million and $8.0
      million, respectively, available to offset future taxable federal and state
      income. If not utilized to offset future taxable income, the federal and state
      carryforwards will expire in various years through 2026 and 2015, respectively.
      In the event the Company were to experience a greater than 50% change in
      ownership as defined in Section 382 of the Internal Revenue Code, the
      utilization of the Company’s tax net operating loss carryforwards could be
      severely restricted.





On
      January 1, 2007, the Company adopted the provisions of FIN 48 *,
      Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No. 109, Accounting for Income Taxes* .
      FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in the
      entity’s financial statements in accordance with SFAS No. 109. The adoption of
      FIN 48 did not result in a cumulative effect adjustment to the Company’s
      retained earnings. As of the date of adoption, the Company had no unrecognized
      income tax benefits. Accordingly, the annual effective tax rate was not affected
      by the adoption of FIN 48. Should
      the Company incur interest and penalties relating to tax uncertainties, such
      amounts would be classified as a component of interest expense and operating
      expense, respectively.




At
      December 31, 2007, the Company had no increase or decrease in unrecognized
      income tax benefits for the year. There was no accrued interest or penalties
      relating to tax uncertainties at December 31, 2007. Furthermore,
      there were no adjustments to the liability or lapse of statute of limitation
      or
      settlements with taxing authorities.





The
      Company expects resolution of unrecognized tax benefits, if created, would
      occur
      while the full valuation allowance of deferred tax assets is maintained,
      therefore, the Company does not expect to have any unrecognized tax benefits
      that, if recognized, that would affect the effective tax rate.




The
      Company is subject to income tax in the U.S. federal jurisdiction and California
      state jurisdictions and has identified its federal and California tax returns
      below as “major” tax filings. These jurisdictions, along with the years still
      open to audit under the applicable statutes of limitation, are as follows:




Jurisdiction
            
            Tax YearsFederal
            
            2004
              – 2006California
            
            2003
              – 2006





However,
      because the Company had net operating losses and credits carried forward in
      both
      of the jurisdictions, certain items attributable to closed tax years are still
      subject to adjustment by applicable taxing authorities through an adjustment
      to
      tax attributes carried forward to open years.





F-27








NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**


---



**8.
      EQUITY TRANSACTIONS**





***Preferred
      Stock***





The
      Company has authorized 15,000,000 shares of cumulative, convertible Series
      B
      Preferred Stock (“Series B”) with a par value of $1 per share. The Series B has
      a mandatory cumulative dividend of $1.25 per share, which is payable on a
      semi-annual basis, and convertible into 1.67 shares of the Company’s common
      stock, does not have any voting rights, and has liquidation preference equal
      to
      $25 per share before any payment or distribution shall be made on common stock.





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





During
      the years ended December 31, 2007 and 2006, the Company issued 15,000 and 20,000
      shares of restricted common stock, respectively, upon conversion of 900 and
      1,200 shares of Series C, respectively, at a conversion rate of
      16.667-to-1.





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





At
      December 31, 2006, the Company had a total of 27,780 shares of Series C issued
      and outstanding with accumulated dividends totaling approximately $238,000.





At
      December 31, 2007, the Company had a total of 26,880 shares of Series C issued
      and outstanding with accumulated dividends totaling approximately $225,000,
      which is included in dividends payable in the consolidated balance sheet.





During
      the year ended December 31, 2004, the Company issued a Private Placement
      Memorandum (“PPM”) in which the Company offered to eligible investors, as
      defined, a maximum of 30,000 shares of Series D Preferred Stock (“Series D”),
      with a required minimum offering of 1,000 shares of Series D to be sold at
      $25
      per share. During the year ended December 31, 2004 and pursuant to the PPM,
      the
      Company issued 23,640 shares of Series D to eligible investors for proceeds
      totaling $521,000, net of $30,000 paid to the broker/dealer and $40,000 of
      accounts payable which were exchanged for shares. Such offering costs were
      included as an offset to additional paid-in capital in the accompanying
      consolidated financial statements. Since the related conversion rate is 50:1,
      the effective conversion rate of $0.50 resulted in a deemed dividend of
      $153,660, which was included in accumulated deficit. The deemed dividend is
      also
      reflected as an increase in the net loss attributable to common shareholders
      for
      2004 (see Note 8). Additionally, the broker/dealer was granted Three-Year
      Placement Warrants, as defined in the PPM, with a cashless exercise feature
      to
      purchase 25,000 shares of the Company’s common stock at prices ranging from
      $0.50 to $1.00. No expense was recorded related to the granting of such warrants
      as they were considered an offering cost. The warrants vested immediately and
      expired in February 2007.


On
        August
        25, 2005, two of preferred shareholders elected to convert 12,000 preferred
        stock into 600,000 shares of Company’s common stock.


F-28





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**8.
      EQUITY TRANSACTIONS (continued)**





***Preferred
      Stock*** (continued)




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





At
      December 31, 2006, the Company had a total of 11,640 shares of Series D issued
      and outstanding, with accumulated dividends totaling approximately
      $125,000.





At
      December 31, 2007, the Company had a total of 11,640 shares of Series D issued
      and outstanding, with accumulated dividends totaling approximately $151,000,
      which is included in dividends payable in the consolidated balance
      sheet.





***Common
      Stock***




Issuance
      Of Stock For Services Valued in
      accordance with the EITF 96-18




In
      December 2007, the Company entered into a three month contract with a third
      party for corporate consulting and marketing services valued at $180,000. The
      fee was paid as follows: $30,000 in cash, 300,000 shares of the Company’s common
      stock valued at $45,000 based on the stock market price of the shares at the
      contract date, and 700,000 options valued at $105,000 using the Black-Scholes
      option-pricing model to purchase the Company’s common shares. The value of the
      common stock and options issued on the date of the transaction were recorded
      as
      a deferred charge and is amortized to operating expense over the life of the
      agreement. At December 31, 2007, the remaining deferred consulting fees under
      this contract totaled $125,000.




In
      June
      2007, the Company entered into a three year contract with a third party for
      internet public investor relations services valued at $210,000. The fee was
      paid
      in the form of 300,000 shares of Company’s common stock and valued based on the
      stock market price of the shares at the contract date. The value of the common
      stock on the date of the transaction was recorded as a deferred charge and
      is
      amortized to operating expense over the life of the agreement. At December
      31,
      2007, the remaining deferred consulting fees under this contract totaled
      $169,171.





In
      June
      2007, the Company entered into a ninety day contract with a third party for
      public investor relations services valued at $10,500. The fee was paid in the
      form of 15,000 shares of the Company’s common stock and valued based on the
      stock market price of the shares at the contract date. The value of the common
      stock on the date of the transaction was recorded as a deferred charge and
      was
      amortized to operating expense over the life of the agreement. The consulting
      fees under this contract were amortized to expense during the year.




F-29





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**8.
      EQUITY TRANSACTIONS (continued)**





***Common
      Stock (continued)***




**Issuance
      Of Stock For Services Valued in accordance with the EITF 96-18
      (continued)**




In
      June
      2007, the Company entered into a six month contract with a third party for
      corporate consulting and marketing services valued at $52,500. The fee was
      paid
      in the form of 75,000 shares of the Company’s common stock based on the
      stock market price of the shares at the contract date. The value of the common
      stock on the date of the transaction was recorded as a deferred charge and
      was
      amortized to operating expense over the life of the agreement. The consulting
      fees under this contract were amortized to expense during the year.




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




In
      May
      2007, the Company issued 100,000 shares of common stock valued at $70,000 (based
      on the market price of the shares) to a third party for public investor
      relations services under one year contract. The common stock was recorded at
      the
      estimated fair value of the common stock on the date of the transaction as
      a
      deferred charge and is amortized to operating expense over the life of the
      agreement. As described in Note 1, in accordance with the EITF 96-18, the value
      of this services are not readily determinable and the fair value of the equity
      instruments is more reliably measurable. Under this arrangements, the
      performance criteria required for a measurement date is not reached until the
      service period has been completed. As a result, the Company is required to
      re-measure the consideration at each reporting date based on its then current
      stock value. During the year ended December 31, 2007, the Company recorded
      net
      decreases to the fair values of such equity based compensation arrangements
      of
      approximately $12,000. At December 31, 2007, the remaining deferred consulting
      fees under this contract totaled $8,250.





In
      February 2007, the Company issued 150,000 shares of common stock valued at
      $60,000 (based on the market price of the shares on the date the services were
      completed in accordance with EITF 96-18) to a third party for investor marketing
      services under a one month contract. The fee was recorded as public company
      expense in the first quarter of 2007 in the consolidated statements of
      operations.





In
      February 2007, the Company issued 100,000 shares of common stock valued at
      $36,000 (based on the market price of the shares on the date the services were
      completed in accordance with EITF 96-18) to a third party for financial
      consulting services under a 13 day contract. The fee was recorded as public
      company expense in the first quarter of 2007 in the consolidated statements
      of
      operations.





In
      February 2007, the Company issued 300,000 shares of common stock valued at
      $126,000 (based on the market price of the shares on the date the services
      were
      completed in accordance with EITF 96-18) to a third party for investor relation
      services under a one month contract. The fee was recorded as public company
      expense in the first quarter of 2007 in the consolidated statements of
      operations.





F-30





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**8.
      EQUITY TRANSACTIONS (continued)**





***Common
      Stock*** (continued)





**Issuance
      Of Stock For Services Valued in accordance with the EITF 96-18
      (continued)**




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





**Other
      Issuances**





On
      June
      29, 2007, the Company issued 675,000 shares of common stock in connection with
      Note B as penalties on defaulted secured convertible **** n ote .




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




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





On
      March
      7, 2006 the
      Company issued 250,000 shares of common stock to a third party as financing
      fees
      in connection with Note B. The shares were valued at $157,500 (based on the
      estimated fair value of the common stock on the date of the transaction ) and
      recorded as deferred financing costs and amortized to interest expense over
      the
      life of the note. During 2006 and 2007, the Company amortized to interest
      expense an amount of $43,750 and $52,500, respectively. As of December 31,
      2007,
      a balance of $61,250 remained to be amortized.





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




F-31





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**


---



**8.
      EQUITY TRANSACTIONS (continued)**





***Common
      Stock*** **(continued)**





**Other
      Issuances (continued)**





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, 2007. The related
      accrued interest receivable and interest income are insignificant to the
      consolidated financial statements.





During
      the year ended December 31, 2001, the Company received a subscription receivable
      of $87,500 from a member of the Board of Directors in exchange for shares of
      the
      Company’s restricted common stock. The subscription receivable bears interest at
      an annual rate of 6%. Principal and any unpaid interest were due on October
      6,
      2001. As of December 31, 2007, the subscription receivable remains unpaid.
      The
      related accrued interest receivable and interest income are insignificant to
      the
      consolidated financial statements.




***Stock
      Options and Warrants***





Under
      the
      terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase
      an aggregate of 5,000,000 shares of common stock may be issued to key employees,
      as defined. The exercise price of any option may not be less than the fair
      market value of the shares on the date of grant. No options granted may be
      exercisable more than 10 years after the date of grant. The options granted
      generally vest evenly over a one-year period, beginning from the date of grant.





Under
      the
      terms of the Company's non-statutory stock option plan ("NSSO"), options to
      purchase an
      aggregate of 1,350,000 shares of common stock may be issued to non-employees
      for
      services rendered. These options are non-assignable and non-transferable, are
      exercisable over a five-year period from the date of grant, and vest on the
      date
      of grant.




During
      the year ended December 31, 2007, the Company granted 800,000 options valued
      at
      $120,000 (using the Black-Scholes option pricing model) to third parties for
      corporate consulting and marketing services under three month contract. The
      value of the common stock and options issued on the date of the transaction
      were
      recorded as a deferred charge and is amortized to operating expense over the
      life of the agreement. At December 31, 2007, the remaining deferred consulting
      fees under this contract totaled $100,000.





During
      the year ended December 31, 2006, the Company granted 2,000,000 incentive stock
      options to certain employees under the Company’s ISOP. The options have an
      exercise price of $0.20 and vested on December 1, 2007. Also, the Company
      granted 6,403,728 warrants to certain note holders, its assignee and placement
      agents, in connection with issuance of two convertible notes.





F-32





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**8.
      EQUITY TRANSACTIONS(continued)**





***Stock
      Options and Warrants (continued)***





The
      following is a status of the stock options outstanding at December 31, 2007
      and
      2006 and the changes during the two years then ended:





Year Ended
            
            Year EndedDecember 31,
            
            December 31,2007
            
            2006Weighted
            
            
            
            WeightedOptions
            
            Average Price
            
            Options
            
            Average PriceOutstanding,
                beginning of year
            
            
            3,250,000
            
            $
            0.25
            
            
            1,483,250
            
            $
            0.25Granted
            
            
            800,000
            *
            
            0.15
            
            
            2,000,000
            
            
            0.20Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cancelled/Terminated
            
            
            (100,000
            )
            
            (1.10
            )
            
            (163,500
            )
            
            (0.90
            )Outstanding,
                end of year
            
            $
            3,950,000
            
            $
            0.20
            
            $
            3,250,000
            
            $
            0.25





*
      the
      options were granted on 12/14/2007, two year term, vesting 1/3 per month for
      a
      period of three months, and are not issued under  the
      Company’s approved ISOP.




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





The
      following table summarizes information related to stock options outstanding
      at
      December 31, 2007:





Options OutstandingWeightedAverage
            
            WeightedNumber of
            
            Remaining
            
            AverageOptions
            
            Contractual
            
            ExerciseExercise Price
            
            Outstanding
            
            Life (Years)
            
            Price$0.15
            
            
            800,000
            
            
            0.40
            
            $
            0.15$0.20
            
            
            2,000,000
            
            
            1.96
            
            
            0.20$0.25
            
            
            1,150,000
            
            
            0.20
            
            
            0.253,950,000
            
            
            
            
            $
            0.20





F-33





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**8.
      EQUITY TRANSACTIONS(continued)**





***Stock
      Options and Warrants (continued)***





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





The
      following is a status of the warrants outstanding at December 31, 2007 and
      2006,
      and the changes during the two years then ended:





Year Ended
            
            Year EndedDecember 31,
            
            December 31,2007
            
            2006Weighted
            
            
            
            WeightedWarrants
            
            Average Price
            
            Warrants
            
            Average PriceOutstanding,
                beginning of year
            
            
            6,403,728
            
            $
            0.57
            
            
            55,000
            
            $
            0.86Granted
            
            
            -
            
            
            -
            
            
            6,371,455
            
            $
            0.57Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cancelled/Terminated
            
            
            (25,000
            )
            
            (0.65
            )
            
            (22,727
            )
            
            (0.66
            )Outstanding
                and exercisable, end of year
            
            
            6,378,728
            
            $
            0.57
            
            
            6,403,728
            
            $
            0.57





The
      following table summarizes information related to warrants outstanding at
      December 31, 2007:




Warrants OutstandingWeightedAverage
            
            WeightedNumber of
            
            Remaining
            
            AverageWarrants
            
            Contractual
            
            ExerciseExercise Price
            
            Outstanding
            
            Life (Years)
            
            Price$0.35
            
            
            1,500,000
            
            
            1.40
            
            $
            0.35$0.50-0.75
            
            
            4,848,728
            
            
            2.30
            
            
            0.63$1.00-1.25
            
            
            30,000
            
            
            0.00
            
            
            1.046,378,728
            
            
            
            
            $
            0.57




F-34




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**8.
      EQUITY TRANSACTIONS** (continued)





***Stock
      Options and Warrants*** (continued)





The
      following table summarizes information related to stock options and warrants
      outstanding at December 31, 2007:




Number Of SecuritiesRemaining AvailableEquity Compensation Plan Information
            
            For Future IssuanceNumber Of Securities To Be
            
            Weighted-Average
            
            Under EquityIssued Upon Exercise Of
            
            Exercise Price Of
            
            Compensation PlansOutstanding Options,
            
            Outstanding Options,
            
            (Excluding SecuritiesWarrants And Rights
            
            Warrants And Rights
            
            In Column(A))(A)
            
            (B)
            
            (C)Equity
                compensation plans approved by security holders
            
            
            3,150,000
            
            
            0.22
            
            
            1,850,000Equity
                compensation plans not approved by security holders
            
            
            7,178,728
            
            
            0.52Total
            
            
            10,328,728
            
            
            —
            
            
            1,850,000





F-35




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**9.
      LOSS PER SHARE**





The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted earnings per share computations for the years ended December 31,
      2007 and 2006:





**2007**
            
            **2006**Net
                loss
            
            $
            (3,410,526
            )
            $
            (1,051,744
            )Cumulative
                preferred dividends (See Note 8)
            
            
            (83,675
            )
            
            (84,800
            )Waived
                Cumulative preferred dividends (See Note 8)
            
            
            69,750
            
            
            287,875Numerator
                for basic and diluted loss per common share:Net
                loss applicable to common stockholders
            
            
            (3,424,451
            )
            
            (848,669
            )Denominator
                for basic loss per share:Weighted
                average
                shares
            
            
            12,886,382
            
            
            11,332,289Denominator
                for diluted loss per share:Weighted
                average
                shares
            
            
            12,886,382
            
            
            11,332,289Basic
                loss per share
            
            $
            (0.27
            )
            $
            (0.07
            )Diluted
                loss per share
            
            $
            (0.27
            )
            $
            (0.07
            )




**10.
      COMMITMENTS AND CONTINGENCIES**





***Service
      Agreements***





Periodically,
      the Company enters into various agreements for services including, but not
      limited to, public relations, financial consulting and manufacturing consulting.
      Generally, the agreements are ongoing until such time they are terminated,
      as
      defined. Compensation for services is paid either at a fixed monthly rate or
      based on a percentage, as specified, and may be payable in shares of the
      Company’s common stock. The Company's policy is that expenses related to these
      types of agreements are valued at the fair market value of the services or
      the
      shares granted, whichever is more realistically determinable. Such expenses
      are
      amortized over the period of service.





***Leases***





The
      Company leases its office and warehouse facility under a non-cancelable
      operating lease agreement. The lease requires monthly lease payments of $30,000.
      The lease expires on February 28, 2009 and has an option to
      purchase.


The
      Company leased its office and warehouse facility under a lease agreement which
      ended in December 31, 2007. The lease required monthly lease payments of
      approximately $33,000, with annual increases of 3% through December
      2007.





F-36





NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




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





Rental
      expense for operating leases approximated $450,000 and $410,000 for the years
      ended December 31, 2007 and 2006, respectively; which are included in selling,
      general and administrative in the accompanying consolidated of
      operations.





***Legal***





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





The
      Company is currently negotiating with CAMOFI to settle its debt obligation.
      Interest and penalties accrued through December 31, 2007 approximate $986,000.





***Backlog*** (Unaudited)





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




Balance,
                January 1, 2007
            
            $
            3,595,000New
                contracts, January 1, 2007 through December 31, 2007
            
            
            8,151,00011,746,000Less,
                contract revenue earned – January 1, 2007 through December 31,
                2007
            
            
            (6,990,000
            )Balance
                December 31, 2007
            
            $
            4,756,000





**11.
      SUBSEQUENT EVENTS**





On
      February 8, 2008, the Company entered in to a one year lease agreement to
      rent 38,000 sq.ft. commercial building in Santa Fe Springs, CA. The lease has
      an
      option purchase clause.





On
      February 8, 2008, the Company engaged a consultant to provide public relations
      services. The Company issued 150,000 restricted shares of common stock in
      connection with the agreement.





On
      February 22, 2008, the Company engaged a consultant to provide public and
      financial communication services. The Company issued 100,000 restricted shares
      of common stock in connection with the agreement.





F-37




NEW
      CENTURY COMPANIES, INC. AND SUBSIDIARY


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007**




**11.
      SUBSEQUENT EVENTS (continued)**





On
      March
      25, 2008, the Company engaged a consultant to provide financial services. The
      Company issued 125,000 restricted shares of common stock in connection with
      the
      agreement.




F-38