NEW CENTURY COMPANIES
9835 SANTA FE SPRINGS RD
SANTA FE SPRINGS, CA 90670
From: David Duquette
Telephone (562) 906-8455 Facsimile (562) 906-8459
Date 01/27/2006
Re: Our File No. 000-09459
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New Century Companies, Inc. - Form 10-KSB for the Fiscal Year Ended December
31, 2004 Filed April 1, 2005, Form 10-QSB for the fiscal Quarters Ended March
31, 2005, June 30, 2005, and September 30, 2005
Response to SEC comment letter dated November 30, 2005, File No. 000-09459
Dear Mr. Kuhar:
Set forth below are the Company's responses to the comments and questions
in your letter.
Thank you.
Financial Condition, Liquidity, Capital Resources, page 12
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1. In view of the uncertainties concerning your continued existence as a
going concern, the filing should contain a more detailed description of
management's specific viable plans intended to mitigate the effect of such
conditions and specific viable plans intended to mitigate the effect of
such conditions and management's assessment of the likelihood that such
plans can be effectively implemented. Those elements of the plan that are
particularly significant or critical to overcoming the present financial
difficulties should be clearly identified and discussed. Additionally,
there should be a reasonably detailed discussion of your ability (or
inability) to generate sufficient cash to support its operations during
the twelve-month period following the date of the most recent balance
sheet presented. Please tell us and revise future filings to provide more
details of the specific plan of operations, financing/capital needs and
expected sources such financing. Disclose how long can you satisfy your
liquidity requirements and when you will have to raise new capital. In
addition, provide more details of the debt that is in default, plans to
correct this situation and the expected impact that this will have on your
liquidity.
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Response
The company does not have finite plan for dealing with liquidity issues. We
currently operate with only part-time accounting staff as a result of post
financial working capital short falls. It is improbable to define a clear plan
to overcome these liquidity issues as there can be no assurance that the company
will to generate enough sales or find additional financing. We will try to
define our discussion in the future a little more clearly.
Item 8A. Evaluation of Controls and Procedures, page 15
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2. We see that management has concluded that your disclosure controls and
procedures "are not effective" as of December 31, 2004. When concluding
that your disclosure controls and procedures are not effective, you should
clearly describe the basis for this conclusion. Please tell us and revise
the filing to include details of why you have concluded they were
ineffective and what occurred which lead to this conclusion. This comment
also applies to your quarterly filings. In a related matter, please tell
us why you indicate in the "Changes in Controls and Procedures" section
that ... "no corrective actions with regard to significant deficiencies or
material weaknesses were necessary."
Response
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Management is aware that our controls and procedures are weak as we do not have
sufficient personnel for proper check and balances. We will attempt to improve
this situation as working capital permits.
Consolidated Financial Statements
1.Organization and Summary of Significant Accounting Policies, page F-6
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Going Concern, page F-6
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3. Please tell us and revise your future filings to provide more specific
details of your financial difficulties and your viable plan of operations
as required by FRC 607.02, including timeframes to seek additional
financing arrangements and to repay outstanding in-default notes. In
addition, clearly address your plans to remove the threat for the
continuation of the business as a going concern. Detail should be provided
of the basis for the statement that you intend to fund operations through
increased sales and debt and equity financing arrangements.
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Response
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It is not possible to have a definite plan of action to eliminate the liquidity
or going concern issue for reasons stated above. However, we continually try to
make arrangements with creditors and note holders to improve our financial
condition.
4. We see that you have negotiated with several vendors to obtain a fifty
percent reduction in the amounts due those vendors and recorded a gain on
forgiveness of $544,000. Please tell us more about there agreements with
your vendors. Please explain why the vendors would accept reduced payments
and whether they were given any consideration in exchange for the payment
reductions. Separately identify any related parties. Please also tell us
when the amounts were originally payable and whether the payables relate
to any inventory or other assets currently included on your balance
sheets. We may have further comment on this accounting and/or your
disclosure upon review of your response.
Response
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As there was no way from cash flow to pay off our trade debt we negotiated with
our trade debt to forgive up to 50% of our indebtedness in order to avert a
bankruptcy filing. We maintain a good relation ship with most creditors and they
were willing to forgive this debt so that they could continue to do business
with us in the future with no further consideration.
Inventories, page F-8
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5. We note the inventory reserves you recorded to reduce the net realizable
value of the inventory. With respect to these reserves, confirm that
inventory charges establish a new cost basis for inventory and that
charges are not subsequently reversed to income even if circumstances
later suggest that increased carrying amounts are recoverable. Refer to
SAB Topic 5-BB.
Response
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Yes, the inventory charges establish a new cost basis as such charges will not
be reversal to income in the future.
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Exhibit 31.1
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6. We note that the certifications field as part of this exhibit were not in
the proper form as paragraph one improperly references "this quarterly
report on Form 10-QSB". The required certification must reference the
appropriate report type and form. Accordingly, please file an amendment to
your Form 10-KSB that includes a currently dated certification that
references the appropriate report type and form, i.e. "annual report on
Form 10-QSB."
Response
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We are in process of amending the Exhibit 31-1 of Form 10-KSB, as requested.
Form 10-QSB for the Quarter Ended June 30, 2005
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Condensed Consolidated Financial Statements
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3. Equity Transactions - Page 19
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7. We see on April 12, 2005, you and one of your noteholders (the
"noteholder") executed a mutual agreement (the "Extension Agreement")
whereby you issued the Noteholders 250,000 shares of your restricted
common stock. We also see the Extension Agreement required you to register
the shares by August 13, 2005, to pay penalties of 1,000 additional shares
being issued for each day of delay up to thirty days and 2,500 additional
shares for each day thereafter. Please tell us the following:
o details about the significant terms of the Extension Agreement. We
are especially interested about the nature of registration penalties
and your accounting for them;
The CFO of New Century entered in negotiation with the Note holder to waive the
registration penalty. The negotiation has been fulfilled on November 10, 2005,
when the Note holders agreed in writing to waive the registration penalty
contained in paragraph 2 of the Extension Agreement dated April 12, 2005.
Therefore, no accounting recognition was considerate appropriate.
o the nature of the contractual penalties, including any minimum and
maximum amounts thereof
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Response
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The contractual terms for the extension were setup as fallow:
1. in the case that the Company had receive funding of $2 millions
dollars:
a) $500,000 total cash to be paid to Note holders;
b) a reduction of the note to $300,000 (with the same security)
payable quarterly over 12 month period with interest at 12% and
c) $200,000 worth of registered New Century shares, with the shares
priced at 75% of the average closing prices over the 20 trading days prior
to the funding.
2. the Note holders will receive 250,000 New Century shares. As an
accommodation for the extension, if not registered, New Century agrees
that the resale of the shares will be registered no later then 7/13/05;
any failure to meet that deadline will result in 1,000 additional
registered shares being issued for each day of delay up to 30 days of
delay and 2,500 additional registered shares for each day of delay
thereafter.
New Century did not receive the $2 million funding. Therefore, only
section 2 applied. This section was cancelled per November 10, 2005, See
discussion to your previous question.
o the payment methods and terms permitted under the agreement.
Response
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See discussion to your previous question.
Finally, tell us where the exhibits that include the requested information are
located in your filings or why no such exhibits have been files. Please
cross-reference your response information to the applicable sections of the
exhibits or file all required exhibits. We may have further comments after
review of your response.
Response
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In order to maintain the confidentiality of our Note holders, No exhibits
have been filed. All the information considerate necessary to be disclose
by the company management, are included in our discussion, paragraph 3.
Equity Transaction - page 19.
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8. We see on April 25, 2005 you issued 300,000 shares of restricted
common stock to a holder of the your Cumulative, Convertible, Series
D preferred stock ("Series D") under a verbal agreement as the sole
consideration and remedy for failure to register the common shares
underlying the Series D. Please tell us more about the nature of
penalties you will contractually incur if the Series D shares are
not registered. Tell us if you could continue to be penalized for
the failure to register or maintain effectiveness of your Series D
or other equity instruments registration. Finally, tell us where the
exhibits that include information about the terms of your Series D
preferred stock is located in your filings or why no such exhibits
have been filed. Please cross-reference your response information to
the applicable sections of the exhibits. We may have further
comments after review of your responses.
Response
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The Preferred shareholders have no registration rights and will be no future
penalties associated with the preferred shares. We issued 300,000 restricted
common shares as a good faith cause for not registering the underlying shares of
the convertible preferred stock.
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New Century Companies, Inc. acknowledge that:
o the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action with
respect to the filing; and
o the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Sincerely,
/s/ David Duquette
David Duquette
CEO
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