**UNITED
      STATES**




**SECURITIES
      AND EXCHANGE COMMISSION**




**Washington,
      D.C. 20549**




**FORM
      10-Q**






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




**For
      the quarterly period ended September 30, 2008**




o
            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 x No
o




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
            o
            
            Accelerated
                filer
            oNon-accelerated
                filer
            o
            
            Smaller
                reporting company
            x




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




As
      of
      November 17, 2008, the Company had 15,344,656 shares of common stock, $0.10
      par
      value, issued and outstanding.





Documents
      incorporated by reference: None









**INDEX**





**PART
                I - FINANCIAL INFORMATION**
            
            **Page No.**Item
                1. Financial StatementsCondensed
                Consolidated Balance Sheets -September
                30, 2008 (Unaudited) and December 31, 2007
            
            F-1Condensed
                Consolidated Statements of Operations (Unaudited) -Three
                and Nine Months Ended September 30, 2008 and 2007
            
            F-2Condensed
                Consolidated Statements of Cash Flows (Unaudited) -Nine
                Months Ended September 30, 2008 and 2007
            
            F-3Notes
                to Condensed Consolidated Financial Statements
            
            F-4Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            
            2Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            
            7Item
                4T. Controls and Procedures
            
            7**PART
                II - OTHER INFORMATION**Item
                1. Legal Proceedings
            
            8Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            8Item
                3. Defaults Upon Senior Securities
            
            8Item
                4. Submission of Matters to a Vote of Security
                Holders
            
            8SIGNATURES
            
            9EXHIBITS









**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.









**PART
      I. FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**







**NEW
        CENTURY COMPANIES, INC. AND SUBSIDIARY**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **September
        30, 2008 and December 31, 2007**
 
  **ASSETS****September
                  30, 2008**
              
              **December
                  31,****2008**
              
              **2007****(unaudited)****Current
                  Assets**Cash
              
              $
              4,348
              
              $
              281,729Contract
                  receivables, net
              
              
              50,679
              
              
              438,876Inventories,
                  net
              
              
              669,116
              
              
              886,107Costs
                  and estimated earnings in excess of billings on uncompleted
                  contracts
              
              
              522,755
              
              
              570,797Deferred
                  financing costs, current portion
              
              
              164,178
              
              
              358,292Prepaid
                  expenses and other current assets
              
              
              415,430
              
              
              229,104Total
                  current assets
              
              
              1,826,506
              
              
              2,764,905**Property
                  and Equipment, net**
              
              
              207,384
              
              
              269,092**Deferred
                  Financing Costs, long-term portion**
              
              
              192,369
              
              
              59,715Total
                  Assets
              
              $
              2,226,259
              
              $
              3,093,712**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****Current
                  Liabilities**Bank
                  overdraft
              
              $
              6,607
              
              $
              18,962Accounts
                  payable and accrued liabilities
              
              
              983,992
              
              
              2,074,666Dividends
                  payable
              
              
              418,000
              
              
              376,725Billings
                  in excess of costs and estimated earnings on uncompleted
                  contracts
              
              
              449,165
              
              
              88,025Capital
                  lease obligation, current portion
              
              
              27,274
              
              
              25,597Deffered
                  gain on forgiveness of debt, current portion
              
              
              550,927
              
              
              -Convertible
                  (2007 only) notes payable, net of discount of $322,424at
                  September 30, 2008 and $1,175,504 at December 31, 2007, current
                  portion
              
              
              201,542
              
              
              1,391,163Convertible
                  notes payable, net of discount of $30,878at
                  September 30, 2008 and $0 at December 31, 2007, current
                  portion
              
              
              269,122
              
              
              -Warrant
                  liability
              
              
              99,655
              
              
              -Total
                  current liabilities
              
              
              3,006,284
              
              
              3,975,138**Long
                  Term Liabilities**Capital
                  lease obligation, long-term portion
              
              
              16,992
              
              
              37,679Deffered
                  Gain on forgiveness of debt, long-term portion
              
              
              457,461
              
              
              -Convertible
                  (2007 only) notes payable, net of discount of $268,686for
                  September 30, 2008 and $0 for December 31, 2007, long-term
                  portion
              
              
              2,075,943
              
              
              -Convertible
                  notes payable, net of discount of $25,732for
                  September 30, 2008 and $0 for December 31, 2007, long-term
                  portion
              
              
              274,268
              
              
              -Total
                  long term liabilities
              
              
              2,824,664
              
              
              37,679**Commitments
                  and Contingencies****Stockholders'
                  Deficit**Cumulative,
                  convertible, Series B preferred stock, $1 par value,15,000,000
                  shares authorized, no shares issued and outstanding(liquidation
                  preference of $25 per share)
              
              
              -
              
              
              -Cumulative,
                  convertible, Series C preferred stock, $1 par value,75,000
                  shares authorized, 26,880 shares issued and outstanding(liquidation
                  preference of $910,000)
              
              
              26,880
              
              
              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;15,344,656
                  and 13,744,654 shares issued and outstandingat
                  September 30, 2008 and December 31, 2008, respectivelly
              
              
              1,534,466
              
              
              1,374,466Subscriptions
                  receivable
              
              
              (462,500
              )
              
              (462,500
              )Notes
                  receivable from stockholders
              
              
              (545,165
              )
              
              (545,165
              )Additional
                  paid-in capital
              
              
              9,410,905
              
              
              9,628,781Accumulated
                  deficit
              
              
              (13,860,275
              )
              
              (11,232,567
              )Total
                  stockholders' deficit
              
              
              (3,604,689
              )
              
              (919,105
              )Total
                  liabilities and stockholders' deficit
              
              $
              2,226,259
              
              $
              3,093,712
  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 and Nine Months Ended September 30, 2008 and
        2007**
 **(Unaudited)**
 
  **For
                  the Three Months Ended September 30,**
              
              **For
                  the Nine Months Ended**
                **September
                  30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****CONTRACT
                  REVENUES**
              
              $
              997,890
              
              $
              1,414,269
              
              $
              3,959,168
              
              $
              7,199,885**COST
                  OF SALES**
              
              $
              1,328,845
              
              
              1,448,830
              
              
              4,000,938
              
              
              5,338,205**GROSS
                  PROFIT**
              
              
              (330,955
              )
              
              (34,561
              )
              
              (41,770
              )
              
              1,861,680**OPERATING
                  EXPENSES**Consulting
                  and other compensation
              
              
              121,058
              
              
              160,555
              
              
              466,440
              
              
              802,873Salaries
                  and related
              
              
              86,239
              
              
              85,368
              
              
              213,858
              
              
              312,338Selling,
                  general and administrative
              
              
              128,665
              
              
              177,306
              
              
              845,135
              
              
              545,677**TOTAL
                  OPERATING EXPENSES**
              
              
              335,962
              
              
              423,229
              
              
              1,525,433
              
              
              1,660,888**OPERATING
                  INCOME (LOSS)**
              
              
              (666,917
              )
              
              (457,790
              )
              
              (1,567,203
              )
              
              200,792**OTHER
                  INCOME (EXPENSES)**Gain
                  on writeoff of accounts payable
              
              
              -
              
              
              62,012
              
              
              60,205
              
              
              55,053Liquidated
                  damages
              
              
              -
              
              
              (55,417
              )
              
              
              
              
              (55,417
              )Loss
                  on valuation of derivative liability
              
              
              (37,899
              )
              
              -
              
              
              (37,899
              )
              
              -Interest
                  expense
              
              
              (57,387
              )
              
              (475,188
              )
              
              (1,041,538
              )
              
              (1,662,702
              )**TOTAL
                  OTHER EXPENSES**
              
              
              (95,286
              )
              
              (468,593
              )
              
              (1,019,232
              )
              
              (1,663,066
              )**LOSS
                  BEFORE PROVISION FOR****INCOME
                  TAXES**
              
              
              (762,203
              )
              
              (926,383
              )
              
              (2,586,435
              )
              
              (1,462,274
              )**PROVISION
                  FOR INCOME TAXES**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS**
              
              $
              (762,203
              )
              $
              (926,383
              )
              $
              (2,586,435
              )
              $
              (1,462,274
              )Preferred
                  Stock Dividends
              
              $
              (41,275
              )
              $
              27,350
              
              $
              (41,275
              )
              $
              27,350**NET
                  LOSS APPLICABLE****TO
                  COMMON STOCKHOLDERS**
              
              $
              (803,478
              )
              
              (899,033
              )
              $
              (2,627,710
              )
              
              (1,434,924
              )**Basic
                  and diluted net loss available to****common
                  stockholders per common share**
              
              $
              (0.05
              )
              
              (0.07
              )
              $
              (0.18
              )
              $
              (0.11
              )**Basic
                  and diluted weighted average common****shares
                  outstanding**
              
              
              15,344,656
              
              
              13,440,580
              
              
              14,478,506
              
              
              12,698,246




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 Nine Months Ended September 30, 2008 and 2007**


**(Unaudited)**







**2008**
            
            **2007**Cash
                flows from operating activities:Net
                loss
            
            $
            (2,586,435
            )
            $
            (1,462,274
            )Adjustments
                to reconcile net loss to net cash(used
                in) provided by operating activities:Depreciation
                and amortization of property and equipment
            
            
            61,708
            
            
            95,659Gain
                on write off of accounts payable
            
            
            (60,205
            )
            
            55,053Amortization
                of deferred financing cost
            
            
            216,298
            
            
            268,722Amortization
                of debt discount and deferred gain
            
            
            1,589,270
            
            
            1,100,380Amortization
                of deferred stock-based consulting fees
            
            
            208,254
            
            
            696,116Estmated
                fair market value of common stock issued for consulting servicesand
                related change in fair value
            
            
            96,710
            
            
            -Loss
                on valuation of Derivative Liability
            
            
            37,899
            
            
            -Bad
                debt expense
            
            
            2,260
            
            
            -Changes
                in operating assets and liabilities:Contracts
                receivable
            
            
            385,937
            
            
            (365,832
            )Inventories
            
            
            216,991
            
            
            (369,683
            )Costs
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            
            48,042
            
            
            555,473Prepaid
                expenses and other current assets
            
            
            (274,579
            )
            
            (1,697
            )Notes
                and interest accrued on notes receivable from stockholders
            
            
            -
            
            
            (28,000
            )Accounts
                payable and accrued liabilities
            
            
            (1,067,903
            )
            
            100,859Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            361,140
            
            
            (168,453
            )Net
                cash (used in) provided by operating activities
            
            
            (764,613
            )
            
            476,323Cash
                flows from investing activities:Purchases
                of property and equipment
            
            
            -
            
            
            (32,225
            )Net
                cash used in investing activities
            
            
            -
            
            
            (32,225
            )Cash
                flows from financing activities:Restricted
                cash
            
            
            -
            
            
            123,898Bank
                overdraft
            
            
            (12,355
            )
            
            21,733Proceeds
                from issuance of convertible notes payable
            
            
            600,000
            
            
            -Principal
                payments on notes payable
            
            
            (100,413
            )
            
            (624,500
            )Net
                cash provided by (used in) financing activities
            
            
            487,232
            
            
            (478,869
            )Net
                (decrease) increase in cash
            
            
            (277,381
            )
            
            (34,771
            )Cash
                at beginning of period
            
            
            281,729
            
            
            53,318Cash
                at end of period
            
            $
            4,348
            
            $
            18,547Supplemental
                disclosure of non-cash financing and investing activities:Accrued
                cumulative dividends on preferred stock
            
            $
            41,275
            
            $
            42,400Reversal
                of accrued dividends older than four years on preferred
                stock
            
            $
            -
            
            $
            (69,750
            )Conversion
                of notes payable and interest to common stock
            
            $
            -
            
            $
            424,317Common
                stock and warrants issued for deferred financing costs
            
            $
            102,500
            
            $
            -Conversion
                of Series C preferred stock to common stock
            
            $
            -
            
            $
            1,500Debt
                discount balance on convertible notes payable
            
            $
            647,720
            
            $
            1,427,397Deferred
                gain balance on convertible notes payable
            
            $
            1,008,388
            
            $
            -




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 AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007**







**1.
      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES**




***Organization
      and Nature of Operations***




New
      Century Companies, Inc. and its wholly owned subsidiary, New Century
      Remanufacturing, 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.




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 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
      consolidated financial statements, accounting policies and notes thereto
      included in the Company's Annual Report on Form 10-KSB for the year ended
      December 31, 2007, 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 September 30, 2008, 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 and nine months ended September 30, 2008 are not necessarily indicative
      of
      the results for the full year ending December 31, 2008. Amounts related to
      disclosure of December 31, 2007 balances within these interim condensed
      consolidated financial statements were derived from the audited 2007
      consolidated financial statements and notes thereto.





***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 losses from operations year to date
      of approximately $1,567,000, an accumulated deficit of approximately $13,860,000
      and a negative working capital balance of approximately $1,180,000. These
      factors, among others, raise substantial doubt about the Company's ability
      to
      continue as a going concern. The Company intends to fund operations through
      anticipated increased sales along with debt and equity financing arrangements.
      Currently, the Company's management attracted additional funding in the form
      of
      secured debt. However, there is no guarantee that the capital raised is
      sufficient to fund its capital expenditures, working capital and other cash
      requirements for the year ending December 31, 2008. Therefore, the Company
      will
      be required to seek additional funds to finance its long-term operations.




F-4




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




·
            The
                Company continues its aggressive program for selling inventory.




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




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




·
            The
                Company has successfully restructured its debt, eliminating the penalties
                and interest for past default and extending the repayment term (See
                Note
                3).


·
              The
                  Company's management also attracted additional funding in the form
                  of
                  secured debt (See Note
                  3).


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.




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.




***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 cost,
      offset by reserve for estimated markdowns on inventory costs.




Inventory
      costs as of September 30, 2008 and December 31, 2007:





September
                30,
              2008
            
            December
                31,
              2007Cost
                of labor
            
            $
            75,000
            
            $
            86,000Cost
                of materials
            
            
            462,000
            
            
            615,000Cost
                of subcontracted services
            
            
            42,000
            
            
            61,000Allocation
                of indirect overhead cost
            
            
            376,000
            
            
            410,000Gross
                inventory
            
            $
            955,000
            
            $
            1,172,000Reserve
                for estimated markdowns on inventory costs
            
            
            (286,000
            )
            
            (286,000
            )Net
                inventory
            
            $
            669,000
            
            $
            886,000




F-5




***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 and, therefore, takes into account the cost, estimated earnings and
      revenue to date on fixed-fee contracts not yet completed. The
      percentage-of-completion method is used because management considers total
      cost
      to be the best available measure of progress on the contracts. Because of
      inherent uncertainties in estimating costs, it is at least reasonably possible
      that the estimates used will change within the near term. The Company recognizes
      revenue on contracts pursuant to AICPA Statement of Position 81-1, “Accounting
      for Performance of Construction-Type and Certain Production-Type
      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.




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 September 30, 2008, 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
      (loss) per share is computed by dividing net (loss) by the weighted average
      number of common shares outstanding for the period. Diluted net (loss) per
      share
      is computed by dividing net income (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 10,101,000 at September 30, 2008
      and
      6,192,972 at December 31, 2007 are not included in the diluted loss per share
      as
      they would be anti-dilutive. Accordingly, diluted and basic loss per common
      share are the same at September 30, 2008 and December 31, 2007.




F-6




***Stock
      Based Compensation***





Equity
      Instruments That Are Issued To Employees





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




Under
      the
      modified prospective method of adoption for SFAS No. 123-R, the compensation
      cost recognized by the Company beginning January 1, 2006 includes compensation
      cost for all equity incentive awards granted subsequent to January 1, 2006,
      based on the grant-date fair value estimated in accordance with the provisions
      of SFAS No. 123-R. The Company had no equity incentive awards granted prior
      to
      January 1, 2006 that were not yet vested. Accordingly, $0 and $86,400 of
      share-based compensation expense was recognized in the accompanying condensed
      consolidated financial statements for the three month periods ended September
      30, 2008 and 2007, respectively. $0 and $259,200 of share-based compensation
      expense was recognized in the accompanying condensed consolidated financial
      statements for the nine month periods ended September 30, 2008 and 2007,
      respectively.





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





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





On
      November 13, 2006, the Company granted 2,000,000 options to key employees.
      At
      September 30, 2008, the Company had 2,200,000 options available for future
      issuance under their equity compensation plans.





There
      is
      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 or
      nine
      months ended September 30, 2008 and 2007. 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, no changes occurred
      in the period ended September 30, 2008.




F-7




Options
      outstanding that have vested and are expected to vest as of September 30, 2008
      are as follows:





WeightedWeighted
            
            AverageAverage
            
            Remaining
            
            AggregateNumber
                of
            
            Exercise
            
            Contractual
            
            IntrinsicShares
            
            Price
            
            Term
                in Years
            
            Value(1)Vested(2)
            
            
            2,800,000
            
            $
            0.19
            
            
            2.57
            
            $
            —Expected
                to vest
            
            
            —
            
            
            —
            
            
            —
            
            $
            —Total
            
            
            2,800,000
            
            
            0.19
            
            
            2.57
            
            $
            —




(1)-
            These
                values are calculated as the difference between the exercise price
                and
                $0.09, the closing market price of the Company's common stock on
                September
                30, 2008 as quoted on the Over-the-Counter Bulletin Board under the
                symbol
                "NCNC.OB" for all in-the-money options
                outstanding.




(2)-
            Includes
                800,000 options that became fully vested on March 14, 2008 and are
                valued
                at $120,000 based on the stock market price of the shares at the
                contract
                date.




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





Outstanding
                OptionsShares
            
            
            
            Weighted
            
            AggregateAvailable
            
            Number
                of
            
            Average
            
            Intrinsicfor
                Grant
            
            Shares
            
            Exercise
                Price
            
            Value(1)December
                31, 2007
            
            
            1,050,000
            
            
            3,950,000
            
            $
            0.20
            
            $
            79,000Grants
            
            
            —
            
            
            —
            
            
            —Exercises
            
            
            —
            
            
            —
            
            
            —Cancellations
            
            
            1,150,000
            
            
            1,150,000
            
            $
            0.25September
                30, 2008
            
            
            2,200,000
            
            
            2,800,000
            
            $
            0.19
            
            $
            —Options
                exercisable at:September
                30, 2008
            
            
            
            
            
            2,800,000
            
            $
            0.19December
                31, 2007
            
            
            
            
            
            3,950,000
            
            $
            0.20




(1)-
            Represents
                the 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
                September 30, 2008 and December 31, 2007, the market price of the
                Company's common stock was $0.09 and $0.22, respectively) for all
                in-the-money options outstanding.




F-8




Equity
      Instruments That Are Issued To Other Than Employees





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





During
      the three and nine month periods ended September 30, 2008, the Company did
      not
      grant any options.





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.





On
      June
      26, 2008, in connection with restructuring of the CAMOFI convertible note,
      the
      Company issued 1,450,000, 5 year warrants, 725,000 with an exercise price of
      $0.10 and 725,000 with an exercise price of $0.20.





On
      August
      8, 2008, the Company issued a new convertible note to CAMHZN Master LDC
      (“CAMHZN”) for $600,000 (See Note 3.2. bellow) . In connection with the note,
      the Company issued 1,000,000, 7 year warrants with an exercise price of
      $0.07.





The
      following is a status of the warrants outstanding at December 31, 2007 and
      the
      changes during the nine months ended September 30, 2008:




Outstanding
                WarrantsWeightedWeighted
            
            
            AverageAverage
            
            
            Remaining
            
            
            AggregateWarrants
            
            
            Exercise
            
            
            Contractual
            
            
            IntrinsicPrice
            
            
            Term
                in Years
            
            
            Value(1)December
                31, 2007
            
            
            6,378,728
            
            $
            0.57
            
            
            5.17
            
            $
            —Grants
            
            
            2,450,000
            
            $
            0.12
            
            
            5.61Exercises
            
            
            —
            
            
            —Cancellations
            
            
            5,006,190
            
            $
            0.55
            
            
            0.26September
                30, 2008
            
            
            3,822,538
            
            $
            0.31
            
            
            4.92
            
            $
            —Warrants
                exercisable at:September
                30, 2008
            
            
            3,822,538
            
            $
            0.31December
                31, 2007
            
            
            6,378,728
            
            $
            0.57




(1)-
            Represents
                the 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
                September 30, 2008 and December 31, 2007, the market price of the
                Company's common stock was $0.09 and $0.22, respectively) for all
                in-the-money options outstanding.




F-9




***Deferred
      Financing Costs***





Note
      Payable





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.





In
      June
      2008, in connection with the CAMOFI debt reduction as discussed in Note 3,
      the
      Company entered into a contract with a third party for financial services.
      The
      Company issued 300,000 shares of common stock valued at $36,000, based on the
      market price of the shares on the date of the agreement. The fee is capitalized
      and amortized over the term of the related debt.





In
      August
      2008, the Company issued a $600,000, 2 year convertible note to CAMHZN Master
      LDC. As discussed in Note 3 in connection with the note, the Company incurred
      $50,000 in legal and closing fees. The fees are capitalized and amortized over
      the term of the related debt.





During
      the three months ended September 30, 2008 and 2007, the Company amortized
      approximately $35,000 and $90,000 of deferred financing costs, respectively,
      to
      interest expense. During the nine months ended September 30, 2008 and 2007,
      the
      Company amortized approximately $216,000 and $269,000 of deferred financing
      costs, respectively, to interest expense. At September 30, 2008, the unamortized
      portion of deferred financing costs for the CAMOFI note payable is approximately
      $242,000, and the unamortized portion of deferred financing costs for the CAMHZN
      convertible note payable is approximately $46,000.





Real
      Estate Lease





On
      April
      1 st ,
      2008,
      the company entered into a commercial lease agreement to lease its premises
      for
      ten years. Pursuant to the lease, the Company incurred a brokerage fee of
      approximately $72,500. This cost is capitalized and amortized over the term
      of
      the lease.





During
      the three months ended September 30, 2008, the Company amortized approximately
      $1,800 to rent expense. At September 30, 2008, the unamortized portion of
      deferred brokerage fees for the lease is approximately $69,000.




***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 Statement of Accounting Standards 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
      September 30, 2008, 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 2004,
      and
      to the State of California for the years before 2003.





***Significant
      Recent Accounting Pronouncements***




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




F-10


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





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles and expands disclosures about
      fair value measurements. SFAS No. 157 applies under other accounting
      pronouncements that require or permit fair value measurements, the FASB having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, SFAS No. 157 does not require
      any
      new fair value measurements. SFAS No. 157 is effective for fiscal years
      beginning after December 15, 2007. The adoption of SFAS No. 157 did
      not have a significant impact on the Company’s financial
      statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” SFAS No. 159 expands the scope
      of specific types of assets and liabilities that an entity may carry at fair
      value on its statement of financial position, and offers an irrevocable option
      to record the vast majority of financial assets and liabilities at fair value,
      with changes in fair value recorded in earnings. SFAS No. 159 is effective
      for fiscal years beginning after November 15, 2007. The adoption of SFAS
      No. 159 did not have a significant impact on the Company’s financial
      statements.





On
      May 9,
      2008, the FASB issued Staff Position ("FSP") Accounting Principals Board Option
      (APB) 14-1, Accounting for  Convertible  Debt  Instruments 
That May Be Settled in Cash upon Conversion (Including  Partial Cash 
Settlements),  which clarifies that  convertible  debt
      instruments that may be settled in cash upon conversion  (including partial
      cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, 
Accounting for  Convertible  Debt and Debt Issued  with
      Stock  Purchase  Warrants.  The FSP specifies that issuers of
      such  instruments  should  separately  account for the
      liability  and equity  components  in a manner that will 
reflect  the  entity's nonconvertible   debt 
borrowing  rate  when  interest  cost  is 
recognized  in subsequent  periods.  FSP APB 14-1 is effective
      for financial statements issued for fiscal years beginning after December
      15, 2008 and interim periods within those fiscal years.  The Company
      has not completed its evaluation of the impact of the effect, if any, the
      adoption of FSP APB 14-1 would have.





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.





***Reclassifications***




Certain
      items as previously reported by the Company with respect to the period ended
      December 31, 2007 have been reclassified to conform to the presentation of such
      items for the period ended September 30, 2008.




F-11




**2.
      CONTRACTS IN PROGRESS**





Contracts
      in progress which include completed contracts not completely billed,
      approximate:





September
                30, 2008
            
            December
                31, 2007Cumulative
                costs to date
            
            $
            5,911,000
            
            $
            6,940,000Cumulative
                gross profit to date
            
            
            4,167,000
            
            
            7,893,000Cumulative
                revenue earned
            
            
            10,078,000
            
            
            14,833,000Less
                progress billings to date
            
            
            (10,004,000
            )
            
            (14,350,000
            )Net
                under billings
            
            $
            74,000
            
            $
            483,000







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





September
                30, 2008
            
            December
                31, 2007Costs
                and estimated earnings in excess of billings on uncompleted
                contracts
            
            $
            523,000
            
            $
            571,000Billings
                in excess of costs and estimated earnings on uncompleted
                contracts
            
            
            (449,000
            )
            
            (
                88,000
            )Net
                under billings
            
            $
            74,000
            
            $
            483,000











**3.** **DEBT
      FINANCING TRANSACTIONS**





**3.1.
      CAMOFI Master LDC (“CAMOFI”) Debt**




On
      February 28, 2006, the Company issued a 12% senior convertible promissory note
      to CAMOFI Master LDC. As of June 26, 2008 an aggregate of $3,800,890 principal,
      interest and penalties were due under the note.





Pursuant
      to a letter agreement dated June 26, 2008 (the “Letter Agreement”) between New
      Century Companies, Inc. (the “Company”) and CAMOFI Master LDC (“CAMOFI”), CAMOFI
      agreed to waive certain penalties and default interest which have been accrued
      under the transaction documents previously entered into with CAMOFI, including
      a
      12% Senior Secured Convertible Promissory Note due February 20, 2009 in the
      original principal amount of $3,500,000, Security Agreement, an Amended and
      Restated Registration Rights Agreement, and a Subsidiary Guaranty. The waiver
      is
      subject to the Company’s performance of its obligations under the Letter
      Agreement and the execution of further documentation to be prepared in
      connection with the Letter Agreement. Pursuant to the Letter Agreement, the
      Company issued an amended and restated Note (the “Amended Note”) in the
      principal amount of $2,950,000 with a new maturity date of August 1, 2010.





Additionally,
      under the Letter Agreement, the Company issued 725,000 shares of common stock
      and 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. Commencing on August 1, 2008,
      and
      continuing thereafter on the first business day of every month for the next
      twenty-four months, the Company has the obligation to pay to CAMOFI the amount
      of $70,000, allocated first to the payment of interest and second to the payment
      of principal on the Amended and Restated Note. On or before August 1, 2010,
      the
      Company shall pay to CAMOFI all amounts still outstanding under the Amended
      and
      Restated Note, whether of principal, interest or otherwise.




F-12




The
      transaction qualified as Troubled Debt Restructuring under SFAS No. 15 due
      to
      the company’s current financial difficulties and the concessions granted by
      CAMOFI.  In accordance with SFAS No. 15, no gain on the forgiveness of
      interest and penalties was recognized as the carrying value of the note did
      not exceed the future cash payment at the time of transaction.  The fair
      value of the warrants was approximately $161,000 based on the Black-Scholes
      pricing model, and the fair value of the stock given to CAMOFI was approximately
      $73,000, aggregating to $233,000 which was recorded as a reduction to the
      note.  The remaining forgiveness of the interest and penalties of
      $624,000 was recorded as a deferred gain.





The
      assumptions used in the Black-Scholes pricing model for this transaction were
      as
      following, risk free rate of 3.44%, expected life of 5 years and an implied
      volatility of 187%.





CAMOFI
      also cancelled 3,476,190 warrants with a term of five years, which were issued
      on February 28, 2006 with an exercise price of $0.63 and 1,500,000 warrants
      dated December 19, 2006 with an exercise price of $0.35. The fair value of
      such
      warrants on June 26, 2008 was approximately $530,000, based on the Black-Scholes
      pricing model and was recorded as a deferred gain to be amortized to
      interest expense over the life of the debt.




***Stock
      Purchase Warrants Issued and Cancelled in Connection with the CAMOFI
      Note***




In
      2006,
      the Company granted warrants in connection with the issuance of 12% Senior
      secured convertible promissory note. Under APB No. 14, " *Accounting
      for Convertible Debt and Debt Issued With Stock Purchase
      Warrants* ,"
      the
      relative estimated fair value of such warrants represents a discount from the
      face amount of the notes payable. Such discounts are amortized to interest
      expense over the term of the notes. During the three months ended September
      30,
      2008 and 2007, the Company amortized approximately $50,000 and $158,000,
      respectively, to interest expense. During the nine months ended September 30,
      2008 and 2007, the Company amortized approximately $383,000 and $689,000,
      respectively, to interest expense.




***Beneficial
      Conversion Feature Of CAMOFI Convertible Notes Payable Discontinued on June
      26,
      2008 for Restructured Debt***




The
      convertible feature of certain notes payable provide for a rate of conversion
      that is below market value. Such feature is normally characterized as a
      " *Beneficial
      Conversion Feature* "
      ("BCF"). Pursuant to EITF Issue No. 98-5, " *Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratio* "
      and
      EITF No. 00-27, " *Application
      of EITF Issue No. 98-5 To Certain Convertible Instruments* ,"
      the
      estimated fair value of the BCF is recorded in the condensed consolidated
      financial statements as a discount from the face amount of the notes. Such
      discounts are amortized to interest expense over the term of the notes. During
      the three months ended September 30, 2008 and 2007, the Company amortized
      approximately $30,000 and $94,000, respectively, to interest expense. During
      the
      nine months ended September 30, 2008 and 2007, the Company amortized
      approximately $208,000 and $412,000, respectively, to interest expense. As
      part
      of the restructuring of the CAMOFI debt as discussed in Note 3, the CAMOFI
      debt
      no longer has a conversion feature. As of June 26, 2008, when the Company
      restructured the CAMOFI convertible note, the debt discount balance of
      approximately $672,000 is being amortized to interest expense over the maturity
      term of the note, August 10, 2008.




For
      the
      three and nine months ended September 30, 2008, $81,405 principal payments
      were
      made on the CAMOFI note. As of September 30, 2008 and December 31, 2007, the
      principal balance is approximately $2,869,000 and $2,567,000, respectively,
      which is presented net of debt discounts totaling approximately $591,000 and
      $1,176,000, respectively.




F-13




**3.2.
      CAMHZN Master LDC (“CAMHZN”) Debt**




On
      August
      8, 2008, the Company issued a 15% Senior Secured Convertible Promissory Note
      to
      CAMHZN Master LDC in the principal amount of $600,000, with a maturity date
      of
      August 1, 2010, and a conversion price of $0.07.





Additionally,
      the Company granted 1,000,000 seven year warrants with an exercise price of
      $0.07 to CAMHZN Master LDC.





***Stock
      Purchase Warrants Issued in connection with CAMHZN Convertible Note
      Payable***




Under
      APB
      No. 14, " *Accounting
      for Convertible Debt and Debt Issued with Stock Purchase
      Warrants* ,"
      the
      relative estimated fair value of the warrants granted in connection with the
      issuance of the 15% Senior Secured Convertible Promissory Note represents a
      discount from the face amount of the notes payable. Such discounts are amortized
      to interest expense over the term of the notes. The fair value of the warrants
      given to CAMHZN was approximately $61,756 based on the Black-Scholes pricing
      model and was recorded as a reduction to the note. During the three months
      ended
      September 30, 2008, the Company amortized approximately $5,146 to interest
      expense.





The
      assumptions used in the Black Scholes pricing model are as follows: closing
      stock price $0.07 per share, exercise price, $0.06 per share, estimated life
      7
      years, risk free rate 4.04% and volatility 216%.





The
      warrants have been accounted for as a liability per EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled In, a
      Company’s Own Stock”. The warrants provide for net cash settlement in certain
      circumstances based upon the rights available to a holder of the warrants should
      the Company fail to deliver certificates upon exercise in a timely manner.
      As a
      liability, the warrants are fair valued each quarter and the gain or loss is
      recorded. For the three and nine months ended September 30, 2008, the Company
      recorded a loss on the valuation of $37,899.




The
      convertible feature of certain notes payable provide for a an effective rate
      of
      conversion that is below market value. Such feature is normally characterized
      as
      a " *Beneficial
      Conversion Feature* "
      ("BCF"). Pursuant to EITF Issue No. 98-5, " *Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratio* "
      and
      EITF No. 00-27, " *Application
      of EITF Issue No. 98-5 To Certain Convertible Instruments* ,"
      the
      estimated fair value of the BCF is recorded in the condensed consolidated
      financial statements as a discount from the face amount of the notes. The
      relative fair value of the proceeds allocated to Convertible Promissory Note
      after the fair value allocation to the Stock Purchase Warrants was $538,244.
      The
      effective conversion price is $0.63 per share and it is higher than the closing
      stock price on August 8, 2008. Therefore there is no intrinsic beneficial
      conversion feature.





During
      the three and nine months ended September 30, 2008, the Company accrued
      approximately $15,000 in interest expense.




For
      the
      three and nine months ended September 30, 2008, no principal payments were
      made
      on the CAMHZN note. As of September 30, 2008, the principal balance is 600,000,
      which is presented net of debt discounts and amortization of those discounts,
      approximately $56,610.




**4.
        WAIVER
        OF
        REGISTRATION REQUIREMENT**
  On
        November 18, 2008 in a letter agreement, CAMHZN agreed to waive the liquidated
        damages payment per Section 2(b) of the Registration Rights Agreement for
        good
        and valuable consideration until February 16, 2009, when on or before that
        date,
        a registration statement will need to be declared effective by the SEC. If
        a
        registration statement is not declared effective by that date, then any and
        all
        liquidated damages required by Section 2(b) will be reinstated retroactive
        to
        August 8, 2008.


**5.
      EQUITY TRANSACTIONS**





***Equity
      Compensation***





In
      June
      2008, the Company entered into a 19 day contract with a third party for public
      relations services valued at $18,000. The fee was paid in the form of 200,000
      shares of the Company’s common stock based on the stock market price of the
      shares at the contract date. The value of the common stock on the date of the
      transaction was recorded as a deferred charge and was amortized to operating
      expense over the life of the agreement.





In
      February 2008, the Company entered into a one-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 and the value was based on the
      stock market price of the shares at the contract date. The fee was recorded
      as a
      deferred charge and is amortized to operating expense over the life of the
      agreement. At September 30, 2008, the remaining deferred consulting fees under
      this contract totaled $10,000.




F-14




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 and the value was based on
      the market price of the shares at the contract date. The fee was recorded as
      a
      deferred charge and was amortized to operating expense over the life of the
      agreement.





In
      March
      2008, the Company entered into a one month contract with a third party for
      public and financial communication services valued at $25,000. The fee was
      paid in the form of 125,000 shares of the Company’s common stock and the value
      was based on the market price of the shares at the contract date. The fee was
      recorded as a deferred charge and was amortized to operating expense over the
      life of the agreement.





In
      May
      2007, the Company issued 100,000 shares of common stock valued at $70,000 (based
      on the market price of the shares) to a third party for public investor
      relations services under a one year contract. The common stock was recorded
      at
      the estimated fair value of the common stock on the date of the transaction
      and
      was amortized over the life of the agreement and recorded as deferred
      compensation expense.





In
      June
      2007, the Company issued 300,000 shares of common stock valued at $210,000
      (based on the market price of the shares) to a third party for internet public
      investor relations services under a three year contract. The common stock was
      recorded at the estimated fair value of the common stock on the date of the
      transaction and is amortized over the life of the agreement. At September 30,
      2008, the remaining deferred consulting fees under this contract totaled
      $116,667.





In
      June
      2007, the Company issued 15,000 shares of common stock valued at $10,500 (based
      on the market price of the shares) to a third party for public investor
      relations services under a 90 day contract. The common stock was recorded at
      the
      estimated fair value of the common stock on the date of the transaction and
      was
      amortized over the life of the agreement.





In
      June
      2007, the Company issued 75,000 shares of common stock valued at $52,500 (based
      on the market price of the shares) to a third party for corporate consulting
      and
      market services under a 6 month contract. The common stock was recorded at
      the
      estimated fair value of the common stock on the date of the transaction and
      was
      amortized over the life of the agreement.




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





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





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





In
      accordance with EITF 96-18, “Accounting for Equity Instruments That Are Issued
      to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
      or
      Services,” since the value of the services were not readily determinable on
      transactions that occurred in 2007 and the fair value of the equity instruments
      was more reliably measurable, the value of the services were based on the market
      price of the shares. Further, under these arrangements, the performance criteria
      required for a measurement date was not reached until the service period was
      completed. As a result, the Company was required to re-measure the consideration
      at each reporting date based on its then current stock value. During the three
      and nine months ended September 30, 2008, the Company recorded a decrease of
      approximately $0 and $10,000, respectively, on such services.





During
      the three months ended September 30, 2008 and 2007, the Company amortized
      approximately $40,000 and $181,000, respectively, of consulting expense related
      to deferred consulting fees on such equity based compensation arrangements.
      During the nine months ended September 30, 2008 and 2007, the Company amortized
      approximately $219,000 and $259,000, respectively, of consulting expense related
      to deferred consulting fees on such equity based compensation arrangements.





As
      of
      September 30, 2008 and December 31, 2007, the unamortized portion of consulting
      fees on such equity based compensation arrangements approximate $127,000 and
      $234,000, respectively.




F-15




***Dividends
      on Preferred Stock***





The
      Preferred Series C shares and Preferred 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 do not have any voting rights and have
      liquidation preferences.





At
      September 30, 2008 and December 31, 2007, the Company had a total of 26,680
      Preferred Series C shares and 11,640 Preferred Series D shares issued and
      outstanding. As of September 30, 2008 and December 31, 2007, the Company has
      accumulated dividends in arrears of $418,000 and $376,725, respectively. The
      Company did not declare and does not intend to declare any dividends as of
      September 30, 2008.




**6.
      SUBSEQUENT EVENT**





Under
      the
      terms of the Company's Incentive Stock Option Plan ("ISOP"), on October 8,
      2008,
      the Company granted 1,300,000 incentive stock options to its key
      employees under the Company’s ISOP. The options have an exercise price of
      $0.075, vest 50% on December 31, 2008, and 50% on April 8, 2009, and expire
      on
      April 6, 2010.





SFAS
      No.
      123-R requires employee stock options and rights to purchase shares under stock
      participation plans to be accounted for under the fair value method and requires
      the use of an option pricing model for estimating fair value. Accordingly,
      share-based compensation is measured at the grant date, based on the fair value
      of the award. The exercise price of options is generally equal to the market
      price of the Company's common stock (defined as the closing price as quoted
      on
      the Over-the-Counter Bulletin Board administered by Nasdaq) on the date of
      grant. Accordingly, $97,500 of share-based compensation will be recognized
      in
      the financial statements based on vesting periods, as follows: $48,750 for
      the
      year ended December 31, 2008, and $48,750 for the year ended December 31,
      2009.




**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 than 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.




2




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 the United
      States, Canada and Mexico.




Over
      the
      last four years, the Company has designed and developed a large horizontal
      CNC
      turning lathe with productivity features new to the metalworking industry.
      The
      Company 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 (both traditional and alternative), 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 SEPTEMBER 30, 2008 COMPARED TO
      SEPTEMBER 30, 2007.**





**Revenues** .
      The
      Company generated revenues of $997,890 for the three months ended September
      30,
      2008, which was a $416,379 or 29% decrease from $1,414,269 for the three months
      ended September 30, 2007. The decrease in revenues is primarily due to lower
      than usual customer orders. The decrease in machine orders is a
      direct result of the U.S. economic crises and tighter credit
      markets.





**Gross
      Profit.** Gross
      profit for the three months ended September 30, 2008, was negative $330,955
      or
      negative 33% of revenues, compared to negative $34,561 or negative 2% of
      revenues for the three months ended September 30, 2007, a $296,394 decrease.
      The
      decrease in gross profit is due to certain fixed overhead expenses applied
      to
      lower revenues and certain manufacturing inefficiencies as a result of the
      relocation of facilities in the first quarter of 2008.





**Operating
      Loss.** Operating loss for the three months ended September 30, 2008, was $666,917
      compared to operating loss of $457,790 for the three months ended September
      30,
      2007. The increase in loss of $209,127 is primarily due to decreased revenues
      and lower gross profit on jobs in progress for the quarter ended September
      30,
      2008. The Company incurred total operating expenses of $335,962 for the three
      month ended September 30, 2008, which was a $87,267 or 21% decrease from
      $423,229 for the three months ended September 30, 2007. The decrease in
      operating expenses is primarily due to 25% decrease in consulting and other
      compensation expenses, and secondarily due to 27% decrease in selling, general
      and administrative expenses. The decrease in these expenses is due to the
      management policy to reduce all the operating expenses when the Company have
      a
      material reduction in revenues.





**Interest
      Expense, Debt Discount Amortization and Deferred Gain.** Interest
      expense for the three months ended September 30, 2008, was $57,387 compared
      with
      $475,188 for the three months ended September 30, 2007. The decrease of $417,801
      or 88% in interest expenses is due to restructuring of $3.5 million convertible
      debt to $2.95 million during the three months ended September 30, 2008. The
      effect of restructuring debt is a lower interest expense on convertible
      notes.





**Change
      in Fair Value of Derivative Liability.** As
      of
      September 30, 2008, the decrease in fair value of the derivative liability
      associated with the warrants to purchase common stock, granted in connection
      with the $600,000 convertible debenture, was approximately
      $38,000. The increase in fair value was recorded as a loss in the Company
      Statement of Operation (See Note3 to the condensed consolidated financial
      statements).




3




**RESULTS
      OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO SEPTEMBER
      30, 2007.**





**Revenues** .
      The
      Company generated revenues of $3,959,168 for the nine months ended September
      30,
      2008, which was a $3,240,017 or 45% decrease from $7,199,185 for the nine months
      ended September 30, 2007. The decrease in revenues is primarily due to lower
      than usual customer orders. The decrease in machine orders is a
      direct result of the U.S. economic crises and tighter credit
      markets. Additionally, the decreased in revenues is due to business interruption
      caused by the relocation of the Company’s operations to a new
      facility.





**Gross
      Profit.** Gross
      profit for the nine months ended September 30, 2008, was negative $41,770 or
      negative 1% of revenues, compared to $1,861,680 or 26% of revenues for the
      nine
      months ended September 30, 2007, a 102% decrease. The decrease in gross profit
      is due to certain fixed overhead expenses applied to lower revenues and
      increased cost of sales, both being due to the relocation into new manufacturing
      facilities in the first quarter of 2008. Additionally, a significant segment
      of
      our business is the remanufacturing and reconditioning of used machinery. As
      a
      result, there may be a variance in gross margin from initial contract booking
      as
      the machinery is remanufactured and the margin adjustments are realized on
      a
      monthly basis. These variances directly relate to the initial condition of
      the
      machinery that is being remanufactured.





**Operating
      Loss.** Operating loss for the nine months ended September 30, 2008, was $1,567,203
      compared to operating income of $200,792 for the nine months ended September
      30,
      2007. The increase in loss of $1,767,995 is primarily due to one time relocation
      expenses and the decreased revenues and lower gross profit on jobs in progress
      for the nine months ended September 30, 2008 as a result of the relocation
      of
      the Company’s operations to a new facility. The Company incurred total operating
      expenses of $1,525,433 for the nine month ended September 30, 2008, which was
      a
      $135,455 or 8% decrease from $1,660,888 for the nine months ended September
      30,
      2007. The decrease in operating expenses is primarily due to 42% decrease in
      consulting and other compensation expenses, and secondarily due to 32% decrease
      in salaries and related expenses. These decreased expenses are due to the
      management policy to reduce all the operating expenses (salaries, consulting)
      when the Company have a material reduction in revenues. The decreases are offset
      by 55% increase in selling, general and administrative expenses caused by the
      relocation of the Company’s operations to a new facility in February
      2008.





**Interest
      Expense, Debt Discount Amortization and Deferred Gain** .
      Interest expense for the nine months ended September 30, 2008, was $1,041,538
      compared with $1,662,702 for the nine months ended September 30, 2007. The
      decrease of $621,164 or 37% in interest expenses is primarily due to
      restructuring of $3.5 million convertible debt to $2.95 million during the
      quarter ended September 30, 2007, and secondarily due to $278,000 of debt
      discount charged to interest expense related to the conversion of $350,000
      of
      principal from the CAMOFI Note into the Company’s common stock during the
      third quarter ended September 30, 2007.





**Change
      in Fair Value of Derivative Liability.** As
      of
      September 30, 2008, the decrease in fair value of the derivative liability
      associated with the warrants to purchase common stock, granted in connection
      with the $600,000 convertible debenture, was


approximately
      $38,000. The increase in fair value was recorded as a loss in the Company
      Statement of Operation (See Note3 to the condensed consolidated financial
      statements).





**FINANCIAL
      CONDITION, LIQUIDITY, CAPITAL RESOURCES**





The
      net
      cash decrease during the nine months ended September 30, 2008 was $277,381.
      The
      decrease is due to $764,613 net cash used in operating activities.





For
      the
      nine months ended September 30, 2008, the cash provided by financing activities
      was $487,232, compared with $478,869 cash used in financing activities in the
      nine months ended September 30, 2007. In the nine months ended September 30,
      2008, the cash provided was by issuance of a new convertible note in amount
      of
      $600,000. For the nine months ended September 30, 2007, cash
      used
      to make principal payments on convertible debt notes was 624,500, and for the
      nine months ended September 30, 2008, cash used to make principal payments
      on
      convertible debt notes was $100,413.




4





**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 losses from operations year to date
      of approximately $1,567,000, an accumulated deficit of approximately $13,860,000
      and a negative working capital balance of approximately $1,180,000. These
      factors, among others, raise substantial doubt about the Company's ability
      to
      continue as a going concern. The Company intends to fund operations through
      anticipated increased sales along with debt and equity financing arrangements.
      Currently, the Company's management attracted additional funding in the form
      of
      secured debt. However, there is no guarantee that the capital raised is
      sufficient to fund its capital expenditures, working capital and other cash
      requirements for the year ending December 31, 2008. Therefore, the Company
      will
      be required to seek additional funds to finance its long-term operations.





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




·
            The
                Company continues its aggressive program for selling inventory.




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




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




·
            The
                Company has successfully restructured its debt, eliminating the penalties
                and interest for past default and extending the repayment term (See
                Note
                3).





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.




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***




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 and, therefore, takes into account the cost, estimated earnings and
      revenue to date on fixed-fee contracts not yet completed. The
      percentage-of-completion method is used because management considers total
      cost
      to be the best available measure of progress on the contracts. Because of
      inherent uncertainties in estimating costs, it is at least reasonably possible
      that the estimates used will change within the near term. The Company recognizes
      revenue on contracts pursuant to Statements of Position 81-1, “Accounting for
      Performance of Construction-Type and Certain Production-Type
      Contracts.”




5




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.




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 September 30, 2008, the Company estimated
      the
      markdowns, price concessions and warranty costs and concluded amounts are
      immaterial and did not record any adjustment to revenues.





***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. (See
      Note
      1 to Condensed Consolidated Financial Statements, Inventory
      section)




***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.




6




**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





*Not
      applicable.*








**ITEM
      4T. 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 September 30, 2008 that our disclosure controls and procedures were not
      effective at the reasonable assurance level due to the material weaknesses.





***Changes
      in Controls and Procedures***





There
      have been no changes in our internal controls over financial reporting that
      occurred during our quarter ended September 30, 2008 that have materially
      affected, or are reasonably likely to materially affect, our internal controls
      over financial reporting.




7




**PART
      II. OTHER INFORMATION**





**ITEM
      1. Legal Proceedings**





*None.*





**ITEM
      1A. Risk Factors**





*Not
      applicable.*








**ITEM
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





*On
      August 8, 2008, the Company issued a 15% Senior Secured Convertible Note to
      CAMHZN Master LDC in the principal amount of $600,000 with a maturity date
      of
      August 1, 2010, and a conversion price of $0.07. The Note was issued pursuant
      to
      an exemption from the registration requirements of the Securities Act of 1933,
      as amended, under Section 4(a) and Regulation D.*





**ITEM
      3. Defaults Upon Senior Securities**





*None.*





**ITEM
      4. Submission of Matters to a Vote of Security Holders**




**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 by Chief Executive Officer
        and
  Exhibit
        31.2 Certification required by Rule 13a-14(a) or Rule 15d-14(d) and under
        Section 302 of the Sarbanes-Oxley act of 2002 by Chief Financial
        Officer
 
 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




8




**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.




*NEW
                CENTURY COMPANIES, INC.**Date:
                November 19, 2008*
            
            */s/
                DAVID DUQUETTE**Name:
              David Duquette**Title:
                Chairman, President and
                Director*




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




*Date:
                  November 19, 2008*
              
              */s/
                  DAVID DUQUETTE**Name:
                David Duquette**Title:
                  Chairman, President and
                  Director*






*Date:
                  November 19, 2008*
              
              */s/
                  JOSEF CZIKMANTORI**Name:
                Josef Czikmantori**Title:
                  Secretary and Director*




9