UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q





            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
quarterly period ended March 31, 2009





            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
      1934




Commission
file number: 000-09459




NEW
CENTURY COMPANIES, INC.


(Exact
name of registrant as specified in its charter)




Delaware
            061034587(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      Number)




9835
Romandel Ave.


Santa
Fe Springs, CA 90670


(Address
of principal executive offices)




(562)
906-8455


(Registrant’s
telephone number, including area code)




Not
applicable


(Former
name, former address and former fiscal year, if changed since last
report)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.  Yes  No x




Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). YesoNoo




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).


Large
      accelerated filer
              Accelerated
      filerNon-accelerated
      filer
              Smaller reporting companyx




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ̈Nox




As of May
18, 2009, the Company had 15,344,654 shares of common stock, $0.10 par value,
issued and outstanding.











NEW
CENTURY COMPANIES, INC.





INDEX





Page No.PART
      I - FINANCIAL INFORMATIONItem
      1. Financial Statements
                        
                        F-1Condensed
      Consolidated Balance Sheets - March 31, 2009 (Unaudited) and December 31,
      2008
                        
                        F-1Condensed
      Consolidated Statements of Operations (Unaudited) -Three
      Months Ended March 31, 2009 and 2008
                        
                        F-2Condensed
      Consolidated Statements of Cash Flows (Unaudited) -Three
      Months Ended March 31, 2009 and 2008
                        
                        F-3Notes
      to Condensed Consolidated Financial Statements
                        
                        F-4Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                        
                        4Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                        
                        9Item
      4T. Controls and Procedures
                        
                        9PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
                        
                        11Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds
                        
                        11Item
      3. Defaults Upon Senior Securities
                        
                        11Item
      4. Submission of Matters to a Vote of Security
Holders
                        
                        11Item
      5. Other Information
                        
                        11Item
      6. Exhibits
                        
                        11SIGNATURES
                        
                        12





2





Forward-Looking
Statements




This
Quarterly Report on Form 10-Q contains certain 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. For example, statements regarding the Company’s
financial position, business strategy and other plans and objectives for future
operations, and assumptions and predictions about future product demand, supply,
manufacturing, costs, marketing and pricing factors are all forward-looking
statements. These statements are generally accompanied by words such as
“intend,” anticipate,” “believe,” “estimate,” “potential(ly),” “continue,”
“forecast,” “predict,” “plan,” “may,” “will,” “could,” “would,” “should,”
“expect” or the negative of such terms or other comparable terminology. The
Company believes that the assumptions and expectations reflected in such
forward-looking statements are reasonable, based on information available to it
on the date hereof, but the Company cannot provide assurances that these
assumptions and expectations will prove to have been correct or that the Company
will take any action that the Company may presently be planning. However, these
forward-looking statements are inherently subject to known and unknown risks and
uncertainties. Actual results or experience may differ materially from those
expected or anticipated in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to,
regulatory policies, available cash, research results, competition from other
similar businesses, and market and general economic factors. This discussion
should be read in conjunction with the condensed consolidated financial
statements and notes thereto included in Item 1 of this Quarterly Report on
Form 10-Q.





3




Part
I - Financial Information


ITEM
1.  FINANCIAL STATEMENTS





NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY


CONDENSED
CONSOLIDATED BALANCE SHEETS


March
31, 2009 and December 31, 2008





(Unaudited)March
      31,
                                                                                          
                                                                                          
                                                                                          December
      31,2009
                                                                                          
                                                                                          
                                                                                          2008ASSETSCurrent
      AssetsCash
                                                                                          
                                                                                          $
                                                                                          268,082
                                                                                          
                                                                                          
                                                                                          $
                                                                                          31,889Contract
      receivables, net
                                                                                          
                                                                                          
                                                                                          334,391
                                                                                          
                                                                                          
                                                                                          
                                                                                          237,787Inventories,
      net
                                                                                          
                                                                                          
                                                                                          412,889
                                                                                          
                                                                                          
                                                                                          
                                                                                          564,022Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                                                                                          
                                                                                          
                                                                                          15,551
                                                                                          
                                                                                          
                                                                                          
                                                                                          416,664Deferred
      financing costs
                                                                                          
                                                                                          
                                                                                          262,183
                                                                                          
                                                                                          
                                                                                          
                                                                                          252,305Prepaid
      expenses and other current assets
                                                                                          
                                                                                          
                                                                                          165,933
                                                                                          
                                                                                          
                                                                                          
                                                                                          168,668Total
      current assets
                                                                                          
                                                                                          
                                                                                          1,459,029
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,671,335Property
      and Equipment, net
                                                                                          
                                                                                          
                                                                                          172,877
                                                                                          
                                                                                          
                                                                                          
                                                                                          186,906Deferred
      Financing Costs, net
                                                                                          
                                                                                          
                                                                                          173,803
                                                                                          
                                                                                          
                                                                                          
                                                                                          233,702Total
      Assets
                                                                                          
                                                                                          $
                                                                                          1,805,709
                                                                                          
                                                                                          
                                                                                          $
                                                                                          2,091,943LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesBank
      Overdraft
                                                                                          
                                                                                          $
                                                                                          32,152
                                                                                          
                                                                                          
                                                                                          $
                                                                                          15,329Accounts
      payable and accrued liabilities
                                                                                          
                                                                                          
                                                                                          1,625,005
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,417,464Dividends
      payable
                                                                                          
                                                                                          
                                                                                          459,275
                                                                                          
                                                                                          
                                                                                          
                                                                                          459,275Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                                                                                          
                                                                                          
                                                                                          823,478
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,388,348Capital
      lease obligation, net of current portion
                                                                                          
                                                                                          
                                                                                          28,542
                                                                                          
                                                                                          
                                                                                          
                                                                                          27,874Derivative
      liability
                                                                                          
                                                                                          
                                                                                          4,885,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,975,298CAMOFI
      Convertible note payable, net of discount of $1,756,611 at March 31, 2009
      and$2,089,443
      at December 31, 2008, respectively
                                                                                          
                                                                                          
                                                                                          1,070,669
                                                                                          
                                                                                          
                                                                                          
                                                                                          737,838CAMHZN
      Convertible note payable, net of discount of $294,812 at March 31, 2009
      and$350,090
      at December 31, 2008, respectively
                                                                                          
                                                                                          
                                                                                          455,188
                                                                                          
                                                                                          
                                                                                          
                                                                                          399,910CAMOFI
      Convertible Note, net of discount of $248,439
                                                                                          
                                                                                          
                                                                                          452,761
                                                                                          
                                                                                          
                                                                                          
                                                                                          -CAMHZN
      Convertible Note, net of discount of $61,577
                                                                                          
                                                                                          
                                                                                          112,223
                                                                                          
                                                                                          
                                                                                          
                                                                                          -Total
      current liabilities
                                                                                          
                                                                                          
                                                                                          9,912,229
                                                                                          
                                                                                          
                                                                                          
                                                                                          6,414,272Long
      Term LiabilitiesCapital
      lease obligation, long term portion
                                                                                          
                                                                                          
                                                                                          2,482
                                                                                          
                                                                                          
                                                                                          
                                                                                          9,804Total  liabilities
                                                                                          
                                                                                          
                                                                                          9,914,711
                                                                                          
                                                                                          
                                                                                          
                                                                                          6,424,076Commitments
      and ContingenciesStockholders'
      EquityCumulative,
      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)
                                                                                          
                                                                                          
                                                                                          26,880
                                                                                          
                                                                                          
                                                                                          
                                                                                          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)
                                                                                          
                                                                                          
                                                                                          291,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          291,000Common
      stock, $0.10 par value, 50,000,000 shares authorized;15,344,654  shares
      issued and outstandingat
      March 31, 2009 and December 31, 2008
                                                                                          
                                                                                          
                                                                                          1,534,466
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,534,466Notes
      receivable from stockholders
                                                                                          
                                                                                          
                                                                                          (564,928
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (564,928
                                                                                          )Deferred
      equity compensation
                                                                                          
                                                                                          
                                                                                          (81,667
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (101,667
                                                                                          )Additional
      paid-in capital
                                                                                          
                                                                                          
                                                                                          7,355,007
                                                                                          
                                                                                          
                                                                                          
                                                                                          7,355,007Accumulated
      deficit
                                                                                          
                                                                                          
                                                                                          (16,701,824
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (12,879,955
                                                                                          )Total
      stockholders' equity
                                                                                          
                                                                                          
                                                                                          (8,141,066
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (4,339,197
                                                                                          )Total
      Liabilities and Stockholders' equity
                                                                                          
                                                                                          $
                                                                                          1,805,709
                                                                                          
                                                                                          
                                                                                          $
                                                                                          2,091,943-
                                                                                          
                                                                                          
                                                                                          
                                                                                          -





See
accompanying notes to the condensed consolidated financial
statements.




F-1




NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


For
the Three Months Ended March 31, 2009 and 2008


(Unaudited)





As
      Restated2009
                                              
                                              
                                              2008CONTRACT
      REVENUES
                                              
                                              $
                                              1,298,458
                                              
                                              
                                              $
                                              1,526,602COST
      OF SALES
                                              
                                              
                                              1,365,543
                                              
                                              
                                              
                                              1,308,479GROSS
      PROFIT
                                              
                                              
                                              (67,085
                                              )
                                              
                                              
                                              218,123OPERATING
      EXPENSESConsulting
      and other compensation
                                              
                                              
                                              62,615
                                              
                                              
                                              
                                              271,384Salaries
      and related
                                              
                                              
                                              153,087
                                              
                                              
                                              
                                              53,496Selling,
      general and administrative
                                              
                                              
                                              268,271
                                              
                                              
                                              
                                              438,029TOTAL
      OPERATING EXPENSES
                                              
                                              
                                              483,973
                                              
                                              
                                              
                                              762,909OPERATING
      (LOSS)
                                              
                                              
                                              (551,058
                                              )
                                              
                                              
                                              (544,786
                                              )OTHER
      INCOME (EXPENSES)Gain
      on writeoff of accounts payable
                                              
                                              
                                              5,681
                                              
                                              
                                              
                                              56,628(Loss)
      / gain on derivative liabilities
                                              
                                              
                                              (2,738,436
                                              )
                                              
                                              
                                              1,300,762Interest
      expense
                                              
                                              
                                              (490,498
                                              )
                                              
                                              
                                              (486,769
                                              )TOTAL
      OTHER INCOME (EXPENSES)
                                              
                                              
                                              (3,270,811
                                              )
                                              
                                              
                                              870,621INCOME
      (LOSS) BEFORE PROVISION FORINCOME
      TAXES
                                              
                                              
                                              (3,821,869
                                              )
                                              
                                              
                                              325,835PROVISION
      FOR INCOME TAXES
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -NET
      INCOME ( LOSS)
                                              
                                              $
                                              (3,821,869
                                              )
                                              
                                              $
                                              325,835NET
      INCOME (LOSS) APPLICABLETO
      COMMON STOCKHOLDERS
                                              
                                              $
                                              (3,821,869
                                              )
                                              
                                              $
                                              325,835Basic
      net income (loss) available tocommon
      stockholders per common share
                                              
                                              $
                                              (0.25
                                              )
                                              
                                              $
                                              0.02Diluted
      net income (loss) available tocommon
      stockholders per common share
                                              
                                              
                                              (0.25
                                              )
                                              
                                              $
                                              0.01Basic
      weighted average commonshares
      outstanding
                                              
                                              
                                              15,344,654
                                              
                                              
                                              
                                              14,033,089Diluted
      weighted average commonshares
      outstanding
                                              
                                              
                                              15,344,654
                                              
                                              
                                              
                                              41,981,711







See
accompanying notes to the condensed consolidated financial
statements.





F-2


NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


For
the Three Months Ended March 31, 2009 and 2008


(Unaudited)





As
      Restated2009
                                                                                        
                                                                                        
                                                                                        2008Cash
      flows from operating activities:Net
      loss
                                                                                        
                                                                                        $
                                                                                        (3,821,869
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        325,835Adjustments
      to reconcile net loss to net cash(used
      in) provided by operating activities:Depreciation
      and amortization of property and equipment
                                                                                        
                                                                                        
                                                                                        14,029
                                                                                        
                                                                                        
                                                                                        
                                                                                        20,757Bad
      debt expense (recovery)
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Gain
      on write off of accounts payable
                                                                                        
                                                                                        
                                                                                        (5,681
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -Gain
      on forgiveness of debt
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        (2,872,133
                                                                                        )Amortization
      of deferred financing cost
                                                                                        
                                                                                        
                                                                                        80,021
                                                                                        
                                                                                        
                                                                                        
                                                                                        89,574Amortization
      of stock-based consulting fees
                                                                                        
                                                                                        
                                                                                        20,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        125,345and
      employee compensationAmortization
      of debt discount
                                                                                        
                                                                                        
                                                                                        339,160
                                                                                        
                                                                                        
                                                                                        
                                                                                        251,894Estmated
      fair market value of common stock issued for services
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        75,000(Gain)
      loss on valuation of liabilities
                                                                                        
                                                                                        
                                                                                        2,738,436
                                                                                        
                                                                                        
                                                                                        
                                                                                        (1,300,962
                                                                                        )Changes
      in operating assets and liabilities:Contracts
      receivable
                                                                                        
                                                                                        
                                                                                        (96,604
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (60,178
                                                                                        )Inventories
                                                                                        
                                                                                        
                                                                                        151,133
                                                                                        
                                                                                        
                                                                                        
                                                                                        170,900Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                                                                                        
                                                                                        
                                                                                        401,113
                                                                                        
                                                                                        
                                                                                        
                                                                                        (22,635
                                                                                        )Prepaid
      expenses and other current assets
                                                                                        
                                                                                        
                                                                                        2,735
                                                                                        
                                                                                        
                                                                                        
                                                                                        (222,867
                                                                                        )Accounts
      payable and accrued liabilities
                                                                                        
                                                                                        
                                                                                        238,419
                                                                                        
                                                                                        
                                                                                        
                                                                                        (151,182
                                                                                        )Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                                                                                        
                                                                                        
                                                                                        (564,870
                                                                                        )
                                                                                        
                                                                                        
                                                                                        410,089Net
      cash (used in) provided by operating activities
                                                                                        
                                                                                        
                                                                                        (564,870
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (288,432
                                                                                        )Cash
      flows from investing activities:Purchases
      of property and equipment
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Bank
      overdraft
                                                                                        
                                                                                        
                                                                                        16,823
                                                                                        
                                                                                        
                                                                                        
                                                                                        12,899Proceeds
      from issuance of convertible notes payable
                                                                                        
                                                                                        
                                                                                        730,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Principal
      payments on notes payable and capital lease
                                                                                        
                                                                                        
                                                                                        (6,652
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (6,196
                                                                                        )Net
      cash provided by (used in)  financing activities
                                                                                        
                                                                                        
                                                                                        740,171
                                                                                        
                                                                                        
                                                                                        
                                                                                        448,052Net
      (decrease) increase  in cash
                                                                                        
                                                                                        
                                                                                        236,193
                                                                                        
                                                                                        
                                                                                        
                                                                                        (281,729
                                                                                        )Cash
      at beginning of period
                                                                                        
                                                                                        
                                                                                        31,889
                                                                                        
                                                                                        
                                                                                        
                                                                                        281,729Cash
      at end of period
                                                                                        
                                                                                        $
                                                                                        268,082
                                                                                        
                                                                                        
                                                                                        $
                                                                                        0Derivative
      Liability from new Camhzn note
                                                                                        
                                                                                        
                                                                                        39,997Derivative Liability
      from new Camofi note
                                                                                        
                                                                                        
                                                                                        161,289


See
accompanying notes to the condensed consolidated financial
statements.


F-3





NEW
CENTURY COMPANIES, INC. AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (As Restated)




1.
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES




Organization
And Nature Of Operations




New
Century Companies, Inc. and its wholly owned subsidiary, New Century
Remanufacturong, Inc., (collectively, the "Company"), a California corporation,
was incorporated March 1996 and is located in Southern California. The Company
provides after-market services, including rebuilding, retrofitting and
remanufacturing of metal cutting machinery. Once completed, a remanufactured
machine is "like new" with state-of-the-art computers and the cost to the
Company's customers is substantially less than the price of a new
machine.




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




The
Company trades on the OTC Bulletin Board under the symbol
"NCNC.OB".




Principles
Of Consolidation




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




Basis
Of Presentation





The
accompanying unaudited interim condensed consolidated financial statements have
been prepared by the Company, pursuant to the rules and regulations of the
United States Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) have been omitted pursuant to such SEC rules
and regulations; nevertheless, the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and the notes hereto should be read in conjunction with the financial
statements, accounting policies and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2008, filed with the
SEC. In the opinion of management, all adjustments necessary to present fairly,
in accordance with GAAP, the Company's financial position as of March 31, 2009,
and the results of operations and cash flows for the interim periods presented,
have been made.  Such adjustments consist only of normal recurring
adjustments.  The results of operations for the three months ended
March 31, 2009 are not necessarily indicative of the results for the full year
ending December 31, 2009. Amounts related to disclosure of December 31,
2008 balances within these interim condensed consolidated financial statements
were derived from the audited 2008 consolidated financial statements and notes
thereto.





F-4





The
statement of operations and statement of cash flows for the three months ended
March 31, 2008 included herein were restated to reflect the effect of changes to
the original accounting for the 12% CAMOFI Note issued in February
2006.  The original accounting did not record the separate derivative
liability for the conversion option and warrants in accordance with FAS 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled In, a Company’s Own Stock.”  For additional information
regarding the restatement, see Note 6 of the condensed consolidated financial
statements on Form 10-Q for the three months ended March 31, 2009 included
herein and see Note 11 to our Consolidated Financial Statements included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.





Reclassifications





The
Company has reclassified the presentation of current prior-year information to
conform to the current presentation.




Going
Concern





The
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates, among
other things, the realization of assets and satisfaction of liabilities in the
normal course of business. As of March 31, 2009, the Company has an accumulated
deficit of approximately $16,701,824, had recurring losses, a working capital
deficit of approximately $8,485,264, and was also in default on two of its
convertible notes. 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 renegotiated or
new 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, 2009. 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
    machines.


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


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





The
condensed consolidated financial statements do not include any adjustments
related to recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the Company be
unable to continue as a going concern.




F-5




Inventory




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. The
Company had inventory reserves approximating $577,000 and $533,000 at March 31,
2009, and December 31, 2008, respectively.




Inventory
                    cost
                    (thousands)
                  
                  
                  Direct
                    Labor
                    (thousands)
                  
                  
                  Direct
                    Material
                    (thousands)
                  
                  
                  Subcontractors
                    (thousands)
                  
                  
                  Allocation
      of
                    Indirect
                    Overhead
                    (thousands)03/31/09
                  
                  $
                  990
                  
                  
                  $
                  66
                  
                  
                  $
                  523
                  
                  
                  $
                  47
                  
                  
                  $
                  35412/31/2008
                  
                  $
                  1,097
                  
                  
                  $
                  107
                  
                  
                  $
                  568
                  
                  
                  $
                  45
                  
                  
                  $
                  377




Revenue
Recognition




The
Company's revenues consist primarily of contracts with customers. The Company
uses the percentage-of-completion method of accounting to account for long-term
contracts pursuant to Statements of Position 81-1, “Accounting for Performance
of Construction-Type and Certain Production-Type 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.





For
revenues from stock inventory the Company follows Staff Accounting Bulletin
("SAB") No. 104, "Revenue Recognition", which outlines the basic criteria that
must be met to recognize revenue other than revenue on contacts, and provides
guidance for presentation of this revenue and for disclosure related to these
revenue recognition policies in financial statements filed with the
SEC.




For
contracts, the amount of revenue recognized at the financial 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.




F-6




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
financial statements.




Contracts
that are substantially complete are considered closed for 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.




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




In
accordance with Statements of Financial Accounting Standards ("SFAS") No. 48,
"Revenue Recognition when Right of Return Exists," revenue is recorded net of an
estimate for markdowns, price concessions and warranty costs. Such reserve is
based on management's evaluation of historical experience, current industry
trends and estimated costs. As of March 31, 2009, the Company estimated the
markdowns, price concessions and warranty costs and concluded amounts are
immaterial and did not record any adjustment to revenues.




Basic
And Diluted Loss Per Common Share





Basic net
earnings (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 period.





Common
stock equivalents, representing convertible Preferred Stock, convertible debt,
options and warrants totaling approximately 53,887,000 at March 31, 2009
are not included in the diluted loss per share as they would be anti-dilutive.
Common stock equivalents, representing convertible Preferred Stock, convertible
debt, options and warrants totaling approximately 41,982,000 are included in the
diluted loss per share at March 31, 2008.




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”. Under
the fair value recognition provisions of this statement, share-based
compensation cost is measured at the grant date based on the fair value of the
award and is recognized as expense on a straight-line basis over the requisite
service period, which is the vesting period.  Estimated compensation
for grants that were outstanding as of the effective date will be recognized
over the remaining service period using the compensation cost estimated for the
SFAS 123 pro forma disclosures.  The Company had no equity
incentive awards granted prior to January 1, 2006 that were not yet vested. For
the three months ended March 31, 2009 and 2008, no share-based compensation
expense was recognized in the accompanying condensed consolidated statements of
operations.





F-7





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.





There are
no 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 three months
ended March 31, 2009 and 2008. Share-based compensation recognized as a result
of the adoption of SFAS No. 123-R use the Black Scholes option pricing model for
estimating fair value of options granted.





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





At March
31, 2009, 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 March 31, 2009 was not
applicable.




Options
outstanding that have vested and are expected to vest as of March 31, 2009 are
as follows:





WeightedWeighted
                            
                            
                            AverageAverage
                            
                            
                            Remaining
                            
                            
                            AggregateNumber
      of
                            
                            
                            Exercise
                            
                            
                            Contractual
                            
                            
                            IntrinsicShares
                            
                            
                            Price
                            
                            
                            Term
      in Years
                            
                            
                            Value
      (1)Vested
                            
                            
                            3,450,000
                            
                            
                            $
                            0.17
                            
                            
                            
                            1.74
                            
                            
                            $
                            —Expected
      to vest (2)
                            
                            
                            650,000
                            
                            
                            $
                            0.08
                            
                            
                            
                            0.16
                            
                            
                            $
                            —Total
                            
                            
                            4,100,000
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            —




(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 March 31, 2009 and December 31, 2008, the market price of
      the Company's common stock was $0.08 and $0.05,
    respectively).




(2)           The
650,000 options become fully vested on April 8, 2009 and are valued at $35,014
based on the stock market price of the shares at the contract date.




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:




F-8





Outstanding
      OptionsShares
                                                
                                                
                                                
                                                
                                                
                                                Weighted
                                                
                                                
                                                AggregateAvailable
                                                
                                                
                                                Number
      of
                                                
                                                
                                                Average
                                                
                                                
                                                Intrinsicfor
      Grant
                                                
                                                
                                                Shares
                                                
                                                
                                                Exercise
      Price
                                                
                                                
                                                Value
      (1)December
      31, 2008
                                                
                                                
                                                900,000
                                                
                                                
                                                
                                                4,100,000
                                                
                                                
                                                $
                                                0.15
                                                
                                                
                                                $
                                                —Grants
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —Exercises
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —Cancellations
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —March
      31, 2009
                                                
                                                
                                                900,000
                                                
                                                
                                                
                                                4,100,000
                                                
                                                
                                                $
                                                0.15
                                                
                                                
                                                $
                                                —Options
      exercisable at:March  31,
      2009
                                                
                                                
                                                
                                                
                                                
                                                
                                                3,450,000
                                                
                                                
                                                $
                                                0.17December
      31, 2008
                                                
                                                
                                                
                                                
                                                
                                                
                                                3,450,000
                                                
                                                
                                                $
                                                0.17




(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
March 31, 2009 and December 31, 2008, the market price of the Company's common
stock was $0.08 and $0.05, 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).




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.





F-9





The
following table summarizes information related to stock options outstanding and
exercisable at March 31, 2009:





Exercise
      Price
                  
                  Number
      of
                    Option
                    outstanding
                  
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Life
      (Years)
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Exercisable
                    at
      March
                    31,
      2009
                    (1)$
      0.075-0.0825
                  
                  
                  1,300,000
                  
                  
                  
                  0.40
                  
                  
                  $
                  0.08
                  
                  
                  
                  650,000$
      0.15-0.20
                  
                  
                  2,800,000
                  
                  
                  
                  0.19
                  
                  
                  $
                  0.19
                  
                  
                  
                  2,800,0004,100,000
                  
                  
                  
                  
                  
                  
                  $
                  0.15
                  
                  
                  
                  3,450,000




(1)
            650,000
      options become fully vested on April 8, 2009 and are valued at $35,014
      based on the stock market price of the shares at the contract
      date.





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 March 31, 2009 and December
31, 2008:





Outstanding WarrantsWeighted
                                            
                                            
                                            AggregateNumber
      of
                                            
                                            
                                            Average
                                            
                                            
                                            IntrinsicShares
                                            
                                            
                                            Exercise
      Price
                                            
                                            
                                            Value
      (1)December
      31, 2008
                                            
                                            
                                            5,586,824
                                            
                                            
                                            $
                                            0.21
                                            
                                            
                                            $
                                            —Grants
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Replaced
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Exercises
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Cancellations/
      Terminated
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Outstanding
      and Exercisable atMarch 31, 2009
                                            
                                            
                                            5,586,824
                                            
                                            
                                            $
                                            0.21
                                            
                                            
                                            
                                            —




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 March 31, 2009 and December 31, 2008, the market price of the
Company's common stock was $0.08 and $0.05, respectively).




F-10




The
following table summarizes information related to warrants outstanding and
exercisable at December 31, 2009:





Exercise
      Price
                  
                  Number
      of
                    Warrants
                    outstanding
                  
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Life
      (Years)
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Exercisable
                    at
      March
                    31,
      2009$
      0.60-0.70
                  
                  
                  1,372,538
                  
                  
                  
                  0.84
                  
                  
                  $
                  0.64
                  
                  
                  
                  1,372,538$
      0.07
                  
                  
                  4,214,286
                  
                  
                  
                  3.76
                  
                  
                  $
                  0.07
                  
                  
                  
                  4,214,2865,586,824
                  
                  
                  
                  
                  
                  
                  $
                  0.21
                  
                  
                  
                  5,586,824





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
three months ended March 31, 2009 and 2008, the Company amortized approximately
$80,000 and $90,000, respectively, to interest expense.




Income
Taxes





We
adopted the provisions of Financial Standards Accounting Board Interpretation
No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation
of FASB Statement No. 109 ("SFAS 109") on January 1, 2007. The implementation of
FIN 48 did not result in any adjustment to the Company's beginning tax
positions.  The Company continues to fully recognize its tax benefits
which are offset by a valuation allowance to the extent that it is more likely
than not that the deferred tax assets will not be realized.  As of
March 31, 2009, the Company did not have any unrecognized tax benefits. The
Company files a Consolidated Federal income tax return in the U.S. The Company
files a separate income tax return in the State of California. The Company is no
longer subject to U.S. Federal tax examinations for the years before 2005, and
to the State of California for the years before 2004.





Fair
Value Measurements





The
Company adopted  SFAS No. 157, “Fair Value Measurements”, in the
first quarter of fiscal 2008.  SFAS 157 was amended in
February 2008 by the Financial Accounting Standards Board (“FASB”) Staff
Position (“FSP”) FAS No. 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Its Related Interpretive
Accounting Pronouncements That Address Leasing Transactions”,and by FSP FAS 157-2,
“Effective Date of FASB Statement No. 157”,which delayed the Company’s
application of SFAS 157 for nonrecurring nonfinancial assets and liabilities
until January 1, 2009. FAS 157 was further amended in October 2008 by
FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active”,which clarifies the
application of SFAS 157 to assets participating in inactive
markets.




Implementation
of SFAS 157 did not have a material effect on the Company’s results of
operations or financial position and had no effect on the Company’s existing
fair-value measurement practices. However, SFAS 157 requires disclosure of a
fair-value hierarchy of inputs the Company uses to value an asset or a
liability. The three levels of the fair-value hierarchy are described as
follows:




F-11




Level 1:
Quoted prices (unadjusted) in active markets for identical assets and
liabilities. For the Company, Level 1 inputs include quoted prices on the
Company’s securities that are actively traded.





Level 2:
Inputs other than Level 1 that are observable, either directly or indirectly.
For the Company, Level 2 inputs include assumptions such as estimated life, risk
free rate and volatility estimates used in determining the fair values of the
Company’s option and warrant securities issued.





Level 3:
Unobservable inputs for the asset or liability. Beginning January 1, 2009,
Level 3 inputs may be required for the determination of fair value associated
with certain nonrecurring measurements of nonfinancial assets and liabilities.
The Company does not currently present any nonfinancial assets or liabilities at
fair value.





Significant
Recent Accounting Pronouncements





In
December 2007, the Financial Accounting Standards Board
(“FASB”)  issued Statement of Financial Accounting Standards (“SFAS”)
No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R establishes
principles and requirements for how an acquirer in a business combination: 1)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; 2) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and 3) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R is
effective for business combinations beginning the first annual reporting period
on or after December 15, 2008. Therefore, the Company expects to adopt SFAS 141R
for any business combinations entered into beginning in 2009.





In May
2008, the FASB issued SFAS No. 162, “Hierarchy of Generally Accepted Accounting
Principles” (“SFAS 162”). This statement is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements of
nongovernmental entities that are presented in conformity with GAAP. This
statement will be effective 60 days following the U.S. Securities and Exchange
Commission’s approval of the Public Company Accounting Oversight Board amendment
to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.” The adoption of this Statement is not expected
to have a material impact on the Company’s consolidated financial position or
results of operations.





In April
2009, the FASB Staff Position (“FSP”) 107-1 (“FSP 107-1”) amended SFAS No. 107,
“Disclosures about Fair Value of Financial Instruments”, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. FSP 107-1
also amended Accounting Principals Board (“APB”) Opinion No. 28, “Interim
financial Reporting” to require disclosures in summarized financial information
at interim reporting periods. FSP 107-1 becomes effective for interim reporting
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009 if a company also elects to FSP FAS 157-4,
“Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Indentifying Transactions That Are
Not Orderly”, and FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments”. Management is evaluating the impact this FSP
will have on the Company’s financial statement disclosures.





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-12




2.
CONTRACTS IN PROGRESS





Contracts
in progress which include completed contracts not completely billed approximate
the following as of March 31, 2009 and December 31, 2008:





March
      31, 2009
                    
                    
                    December
      31, 2008Cumulative
      costs to date
                    
                    $
                    2,029,000
                    
                    
                    $
                    6,756,000Cumulative
      gross profit to date
                    
                    
                    1,327,000
                    
                    
                    
                    5,768,000Cumulative
      revenue earned
                    
                    
                    3,356,000
                    
                    
                    
                    12,524,000Less
      progress billings to date
                    
                    
                    (4,081,000
                    )
                    
                    
                    (13,495,000
                    )Net
      under billings
                    
                    $
                    (725,000
                    )
                    
                    $
                    (971,000
                    )





The
following approximate amounts are included in the accompanying condensed
consolidated balance sheets under these captions:





March
      31, 2009
                    
                    
                    December
      31, 2008Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                    
                    $
                    16,000
                    
                    
                    $
                    417,000Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                    
                    
                    (741,000
                    )
                    
                    
                    (1,388,000
                    )Net
      under billings
                    
                    $
                    (725,000
                    )
                    
                    $
                    (971,000
                    )




F-13




3.
CONVERTIBLE DEBT





CAMOFI
AND CAMHZN 12% AND 15% Senior Secured Convertible Debt




The
Company’s convertible debt financing, Amended 12% CAMOFI Convertible Note
(“Amended 12% CAMOFI Note) and 15% CAMHZN Convertible Note (“15% CAMHZN Note”),
are in default.  The last monthly contractual payment on the CAMOFI
note was made in October 2008 and no payments have made on the CAMHZN Note which
were scheduled to begin on September 1, 2008.  The Convertible Notes
aggregate to $3,784,271 principal and interest.  As of March 31, 2009
and December 31, 2008, the principal balances, accrued interest and the debt
discounts are presented in the Convertible Debt Table, bellow.




March
      31, 2009
                                                        
                                                        
                                                        December
      31, 2008CONV
      NOTES
                                                        
                                                        CAMOFI
                                                        
                                                        
                                                        CAMHZN
                                                        
                                                        
                                                        CAMOFI
                                                        
                                                        
                                                        CAMHZNPrincipal
                                                        
                                                        $
                                                        2,827,281
                                                        
                                                        
                                                        $
                                                        750,000
                                                        
                                                        
                                                        $
                                                        2,827,281
                                                        
                                                        
                                                        $
                                                        750,000Discount
      related to warrants liability
                                                        
                                                        $
                                                        (100,355
                                                        )
                                                        
                                                        $
                                                        (41,170
                                                        )
                                                        
                                                        $
                                                        (119,369
                                                        )
                                                        
                                                        $
                                                        (48,890
                                                        )Discount
      related to convertible option liability
                                                        
                                                        $
                                                        (1,605,749
                                                        )
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        (1,909,996
                                                        )Discount
      related to stock issued with notes
                                                        
                                                        $
                                                        (50,508
                                                        )
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        (60,078
                                                        )Notes
      presented net of debt discounts
                                                        
                                                        $
                                                        z1,070,669
                                                        
                                                        
                                                        $
                                                        708,830
                                                        
                                                        
                                                        $
                                                        737,838
                                                        
                                                        
                                                        $
                                                        701,110Accrued
      Interest
                                                        
                                                        $
                                                        141,364
                                                        
                                                        
                                                        $
                                                        65,626
                                                        
                                                        
                                                        $
                                                        56,546
                                                        
                                                        
                                                        $
                                                        37,500




During
the three months ended March 31, 2009 and 2008, the Company amortized debt
discounts of approximately $333,000 and $252,000, respectively, to interest
expense related to the 12% and 15% Convertible Notes.





The
Convertible Debt and Warrant Agreements include an anti-dilution feature and a
buy-in clause which cause the embedded conversion option and the warrants to be
treated as derivative liabilities. which are fair valued on a quarterly basis
and the resulting change in fair value of the derivative liabilities are
recorded as a gain or loss upon valuation in the statement of
operations.





In
connection with the Amended 12% CAMOFI Note, the Company issued 725,000 five
year warrants with an exercise price of $0.10 and 725,000 five year warrants
with an exercise price of $0.20.  Due to the anti-dilution feature in
the warrant agreements, the warrants have a reduced exercise price of $.07 and
adjusted total warrants of 3,214,286 at March 31, 2009 and December 31,
2008.  As of March 31, 2009 and December 31, 2008, the fair value of
the warrant derivative liability was determined to be $257,143 and 119,369
respectively.  A loss upon valuation of $105,743 was recorded for the
three months ended March 31, 2009.




F-14




In
connection with the 15% CAMHZN Note, the Company issued 1,000,000 seven year
warrants with an exercise price of $.07.  As of March 31, 2008 and
December 31, 2008, the fair value of the warrant derivative liability was
determined to be $80,000 and 50,000 respectively. A loss upon valuation of
$30,000 was recorded for the three months ended March 31, 2009.





The
Amended 12% CAMOFI and 15% CAMHZN Notes are both convertible into shares of
common stock at a conversion price of $0.07. At March 31, 2009 and December 31,
2008, the aggregate fair value of the conversion option derivative liabilities
was $3,330,977 and 1,515,634, respectively. A loss upon valuation of $1,815,343
was recorded for the three months ended March 31, 2009.





During
the three months ended March 31, 2008, the Company recorded a loss upon
valuation of 1,921,086 in connection with the change in fair values of the
warrant and conversion option derivative liabilities related to the 12% CAMOFI
Note.





CAMOFI
AND CAMHZN Senior Secured Convertible Debt 83.42857% of face
amount.





On
February 18, 2009, the Company entered into an agreement with CAMOFI Master LDC
for the issuance of a Senior Secured Convertible Note for $701,200, maturing on
August 18, 2009. The Note can be converted at $0.07 per share at any time during
the term of the convertible note. The Note was issued at a discount of 83.42857%
of the face amount. The note is secured by all of the assets of the
Company.





On
February 18, 2009, New Century Companies, Inc. (the “Company”) entered into an
agreement with CAMHZN Master LDC for the issuance of a Senior Secured
Convertible Note for $173,800 maturing on August 18, 2009. The Note can be
converted at $0.07 per share at any time during the term of the convertible
note. The Note was issued at a discount of 83.42857% of the face
amount.





The Notes
are convertible into shares of common stock with a conversion price of $0.07.
Per FAS 133 “Accounting for Derivative Instruments and Hedging Activities”, the
conversion option is a derivative liability. The Company recorded at issuance a
$161,289 derivative liability for the CAMOFI Note, and a $39,977 derivative
liability for the CAMHZN Note. The conversion option liability is revalued each
quarter. At March 31, 2009 the fair value was $632,931 for the CAMOFI Note, and
$156,879 for CAMHZN Note and a loss of $471,643 for the CAMOFI Note and $116,902
for the CAMHZN Note was recorded from the increase in the fair values of these
derivative liabilities.





The
Company recorded at issuance a $116,200 discount on the CAMOFI Note and a
$28,800 discount on the CAMHZN Note for the difference between the face amount
of the notes and the proceeds received. In addition, the discounts resulting
from the conversion options of $161,289 on the CAMOFI Note and $39,977 on the
CAMHZN Note are amortized into interest expense ratably over the life of the
Notes. As of March 31, 2009, the Company recorded amortization expense on the
debt discounts of $29,050 on the CAMOFI Note and $7,200 on the CAMHZN
Note.




F-15




4.
EQUITY TRANSACTIONS





Equity
Compensation





In
February 2008, the Company entered into a year contract with a third party for
public relations services valued at $30,000. The fee was paid in the form of
150,000 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 is amortized to operating
expense over the life of the agreement. Consulting fees under this contract of
$2,500 and $5,000 were amortized to expense during the quarter ended March 31,
2009 and March 31, 2008, respectively. As of March 31, 2009 the balance of
deferred consulting fees was fully amortized.





In
February 2008, the Company entered into a three month contract with a third
party for public relations services valued at $20,000. The fee was paid in the
form of 100,000 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 is amortized to
operating expense over the life of the agreement. Consulting fees under this
contract were amortized to expense during the year ended December 31, 2008 and
at March 31, 2009 the balance of deferred consulting fees was fully
amortized.





In March
2008, the Company entered into a one month contract with a third party for
public and financial communicationservices
valued at $25,000. The fee was paid in the form of 125,000 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 is amortized to operating expense over the
life of the agreement. Consulting fees under this contract  were
amortized to expense during the year ended December 31, 2008 and at March 31,
2009 the balance of deferred consulting fees was fully amortized.




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 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 $17,000 was amortized to operating expense during the quarter ended March
31, 2009. At March 31, 2009 and December 31, 2008, the remaining deferred
consulting fees totaled $81,667 and $204,167, respectively.





During
the three months ended March 31, 2009 and 2008, the Company amortized
approximately $20,000 and $125,000, respectively, of consulting expense related
to deferred consulting fees on equity based compensation arrangements discussed
above.





As of
March 31, 2009 and December 31, 2008, the unamortized portion of consulting fees
on such equity based compensation arrangements approximate $82,000 and $102,000,
respectively.




F-16




Dividends
on preferred stock





The
preferred shares Series C and preferred shares Series D shares have a mandatory
cumulative dividend of $1.25 per share, which is payable on a semi-annual basis
in September and December each year to holders of record on November 30 and May
31. The preferred shareholders have certain liquidation preferences and do not
have voting rights.





At March
31, 2009 and December 31, 2008, the Company had a total of 26,680 preferred
shares Series C and 11,640 preferred shares Series D issued and outstanding. As
of March 31, 2009 and December 31, 2008, the Company’s accumulated dividends
payable is $459,275. The Company did not declare any dividends during the three
months ended March 31, 2009.




5.
EARNINGS (LOSS) PER SHARE
 
 The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings (loss) per share computations for the three months ended
March 31, 2009 and 2008:
 
 2009
                    
                    
                    2008Income
                    
                    
                    
                    
                    
                    Per
      Share
                    
                    
                    Income
                    
                    
                    
                    
                    
                    Per
      Share(Loss)
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    (Loss)
                    
                    
                    Shares
                    
                    
                    AmountNet
      income
                    
                    $
                    (3,575,506
                    )
                    
                    
                    
                    
                    
                    
                    
                    $
                    325,835Less:  Preferred
      stock dividends
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Basic
      income available to common shareholders
                    
                    $
                    (3,575,506
                    )
                    
                    
                    15,344,654
                    
                    
                    $
                    (0.23
                    )
                    
                    $
                    325,835
                    
                    
                    
                    14,033,089
                    
                    
                    $
                    0.02Add:  Preferred
      dividends
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -Add:  Interest
      on convertible debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    254,100
                    
                    
                    
                    -Add:  Dilutive
      impact of convertible preferred stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    1,026,676Add:  Dilutive
      impact of convertible debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    23,333,333Add:  Dilutive
      impact of options and warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    3,588,614Diluted
      income available to common shareholders
                    
                    $
                    (3,575,506
                    )
                    
                    
                    15,344,654
                    
                    
                    $
                    (0.23
                    )
                    
                    $
                    579,935
                    
                    
                    
                    41,981,711
                    
                    
                    $
                    0.01
  The
computation of diluted earnings per share does not assume conversion or exercise
of securities that may have an anti-dilutive effect on earnings per share.
Convertible preferred stock, convertible debt, stock options and warrants that
have not been included in the diluted income per share computation totaled
59,025,025 and 3,490,792 shares of common stock for the three months ended March
31, 2009, and 2008, respectively.


6.
RESTATEMENT





The
statement of operations and statement of cash flows for the three months ended
March 31, 2008 included herein were restated to reflect the effect of changes to
the original accounting for the CAMOFI Note issued in February
2006.  The original accounting did not record the separate derivative
for the conversion option and the warrants in accordance with FAS 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled In, a Company’s Own Stock”.





The
effect of these changes impacted the balance sheet and the statement of
operations from February 2006 through December 31, 2008. The balance sheet
effect is due to recording the conversion option and warrant liabilities and the
effect on the statement of operations is due to the gains and losses from the
quarterly fair value adjustments and an increase in interest expense.
Accordingly, the statement of operations for the three months ended March 31,
2008 has been restated as summarized below:





Effect
      of Correction
                                
                                As
      Previously Reported
                                
                                
                                Adjustment
                                
                                
                                As
      RestatedBalance
      Sheet as of March 31, 2009Conversion
      Option Liability
                                
                                
                                0
                                
                                
                                
                                2,737,709
                                
                                
                                
                                2,737,709Warrant
      Liability
                                
                                
                                0
                                
                                
                                
                                1,713,023
                                
                                
                                
                                1,713,023Accumulated
      Deficit
                                
                                
                                12,207,494
                                
                                
                                
                                2,418,144
                                
                                
                                
                                14,625,638Total
      Stockholders’ Deficit (equity)
                                
                                
                                1,908,610
                                
                                
                                
                                4,899,674
                                
                                
                                
                                6,808,284Statement
      of Operations for the three months ended March 31, 2009Marked-to-Market
      Gain (Loss)
                                
                                
                                0
                                
                                
                                
                                1,300,762
                                
                                
                                
                                1,300,762Net
      Income (Loss)
                                
                                
                                (974,927
                                )
                                
                                
                                1,300,762
                                
                                
                                
                                325,835EPS
      - Basic
                                
                                
                                (0.07
                                )
                                
                                
                                0.09
                                
                                
                                
                                0.02EPS
      - Diluted
                                
                                
                                (0.07
                                )
                                
                                
                                0.03
                                
                                
                                
                                0.008




F-17




ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS 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-Q. 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, 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-Q are qualified in their entirety by this
statement.





OVERVIEW





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. 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 substantially less then the price of an equivalent 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.





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 the Company’s 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 located in United States,
Canada and Mexico.




4




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 believes that a potential market for the Century Turn Lathe, in addition
to the markets mentioned above, is aircraft landing gear.





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.





The
Company's current strategy is to expand its customer sales base with its present
line of machine products. The Company's growth strategy also includes strategic
acquisitions in addition to growing the current business. Plans for expansion
are funded through current working capital from ongoing sales. A significant
acquisition will require additional financing.





RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO MARCH 31,
2008.





Revenues.  The
Company generated revenues of $1,298,458 for the three months ended March 31,
2009, which was a $228,144 or 15% decrease from $1,526,602 for the
three  months  ended  March
31,  2008.  The decrease is the result of lower then usual
sales and a tighter credit market.





Gross Profit.  Gross
profit for the three  months  ended March
31,  2009,  was $(67,085) or 5% of
revenues,  compared to $218,123 or 14% of revenues for the three
months ended March 31, 2008, a 131% decrease. The decrease in gross profit is
due to certain fixed overhead expenses applied to lower revenues.





Operating
Loss.  Operating loss for the three months ended March 31,
2009, was $551,058 compared to $544,786 for the three months ended March 31,
2008. The increase in loss of $6,272 is primarily due to decreased revenues and
lower gross profit on jobs in progress for the quarter ended March 31,
2009.





Interest
Expense and Debt Discount Amortization.  Interest expense for
the three months ended March 31, 2009, was $490,498 compared with $486,769 for
the three months ended March 31, 2008. The increase of $3,729 in interest
expenses is due to additional interest on new convertible loans.




5




The
Company incurred total operating expenses of $483,973 for the three months ended
March 31, 2009, which was a $278,936 or 37% decrease from $762,909 for the three
months ended March 31, 2008. In the three months ended March 31, 2009, compared
with the three months ended March 31, 2008, all the operating expenses increased
(decreased) as follow:





Increase/(Decrease)
                      %Consulting
      and other compensation
                    
                    
                    (77
                    )Salaries
      and related
                    
                    
                    186Selling,
      general and administrative
                    
                    
                    (39
                    )





The
decrease in consulting and other compensation is due to the reduction in the
number of consulting contracts and the expiration of the existing contracts. The
increase in salaries and related costs is due to the reclassification of certain
costs to compensation and selling, general and administrative expenses decreased
due to the increase in public company costs.





Change in Fair Value of Derivative
Liabilities.In connection with its convertible notes, the Company
recorded conversion options and warrant derivative liabilities. The derivative
liabilities are reevaluated each reporting period. For the three months ended
March 31, 2009, a $1,815,343 loss from increase in fair value of the conversion
option liability and a $105,743 loss from increase in fair value of the warrant
liability was recorded on the CAMOFI 12% Convertible Note. Also, there was a
$30,000 gain from the increase in fair value associated with the warrants to
purchase common stock, granted in connection with the $600,000 convertible
debenture.





As of
March 31, 2009, there was a $471,643 loss from increase in fair value of the
February 2009 CAMOFI conversion option liability and a $116,902 loss from
increase in the fair value of the February 2009 CAMHZN conversion option
liability.





The
decrease in fair value was recorded as a gain in the Company Statement of
Operation. (See Note 3 to the condensed consolidated financial
statements).





FINANCIAL
CONDITION, LIQUIDITY, CAPITAL RESOURCES





The net
increase during the three months ended March 31, 2009 was $236,193. The increase
is due to $730,000 proceeds from issuance of 730,000 convertible note
payable.





For
the three months ended March 31, 2009, the cash provided by financing activities
was $719,715, compared with $448,052 in the three months ended March 31, 2008.
For the three months ended March 31, 2008, cash was used by operating
activities.





GOING
CONCERN





The
accompanying condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates, among
other things, the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has an accumulated deficit of
approximately $16,701,824, a net loss of approximately $3,821,869, a working
capital deficit of approximately $8,485,264 and was also in default on two of
its convertible debt. These factors, among others, raises 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 renegotiated
or new 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, 2009. 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.




6


In
response to these problems, management has taken the following
actions:
 ·
              The
      Company continues its aggressive program for selling
    machines.
 ·
              The
      Company continues to implement plans to further reduce operating
      costs.
 ·
              The
      Company is seeking investment capital through the public and private
      markets.
 
 The
condensed consolidated financial statements do not include any adjustments
related to recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the Company be
unable to continue as a going concern.
 
 INFLATION
AND CHANGING PRICES
 
 The
Company does not foresee any adverse effects on its earnings as a result of
inflation or changing prices.
 
 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 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
accounting policies stated below 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 recorded to cost of goods sold and are
immaterial to the operations of the Company.
 
 In
accordance with SFAS 48, "Revenue Recognition when Right of Return Exists,"
revenue is recorded net of an estimate of markdowns, price concessions and
warranty costs. Such reserve is based on management's evaluation of historical
experience, current industry trends and estimated costs.
 
 In
December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 ("SAB 101"), "Revenue Recognition," as amended by SAB No. 104 which
outlines the basic criteria that must be met to recognize revenue and provides
guidance for presentation of revenue and for disclosure related to revenue
recognition policies in financial statements filed with the Securities and
Exchange Commission. Management believes that the Company's revenue recognition
policy for services and product sales conforms to SAB 101 amended by SAB 104.
The Company recognizes revenue of long-term contracts pursuant to SOP
81-1.
  7
 
 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 (over billings) are classified as a current
liability.
 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. The
Company had inventory reserves approximating $578,000 and $533,000 at March 31,
2009, and December 31, 2008, respectively.
 
 Inventory
                        cost
                        (thousands)
                      
                      
                      Direct
                        Labor
                        (thousands)
                      
                      
                      Direct
                        Material
                        (thousands)
                      
                      
                      Subcontractors
                        (thousands)
                      
                      
                      Allocation of
                        Indirect
                        Overhead
                        (thousands)03/31/09
                      
                      $
                      990
                      
                      
                      $
                      66
                      
                      
                      $
                      523
                      
                      
                      $
                      47
                      
                      
                      $
                      35412/31/2008
                      
                      $
                      1,097
                      
                      
                      $
                      107
                      
                      
                      $
                      568
                      
                      
                      $
                      45
                      
                      
                      $
                      377


8
 
 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 Condensed Consolidated Financial Statements, Summary of Significant
Accounting Policies, which discusses accounting policies that must be selected
by management when there are acceptable alternatives.
 
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not
applicable.
 
 ITEM
4. 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 March 31, 2009 that our disclosure controls and procedures were not effective
at the reasonable assurance level due to the material weaknesses discussed
immediately below.
  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 outside 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.
 
 9
 (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 with accounting experience to
assist us in the SEC filings and disclosures prior to the December 31, 2008 10-K
filing during 2009.
 
 (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 as follows:
 
 ·
                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 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.
 CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  There
have been no significant changes in the Company's internal control over
financial reporting during the Company's most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Inherent limitations exist
in any system of internal control including the possibility of human error and
the potential of overriding controls. Even effective internal controls can
provide only reasonable assurance with respect to financial statement
preparation. The effectiveness of an internal control system may also be
affected by changes in conditions.
  10
  PART
II.  OTHER INFORMATION
 
 Item
1.     Legal Proceedings
 
 None.
 
 Item
2.     Unregistered Sales of Equity Securities and Use
of Proceeds
 
 None.
 
 Item
3.     Defaults Upon Senior Securities
 
 Starting
October 2008, the Company has been in default with all monthly payments on the
12% CAMOFI and 15% CAMHZN Convertible Note payable. As of March 31, 2009, the
Company’s
default principal and interest aggregate to $510,000.
 
 Item
4.     Submission of Matters to a Vote of Security
Holders
 
 None.
 
 Item
5.     Other Information
 
 None.
 
 Item
6.     Exhibits
 
 Exhibit
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
 
 Exhibit
32.1 Certification required by Rule 13a-14(a) or Rule 15d-14(d) and under
Section 906 of the Sarbanes-Oxley act of 2002
  11
  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.
 
 May
      20, 2009
                    NEW
      CENTURY COMPANIES, INC./s/
      DAVID DUQUETTEName:  David
      DuquetteTitle:
      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.
 
 May
      20, 2009
                        /s/
      DAVID DUQUETTEName:  David
      DuquetteTitle:
      Chairman, President and DirectorMay
      20, 2009
                        /s/
      JOSEF CZIKMANTORIName:
      Josef CzikmantoriTitle:
      Secretary and
Director
  12