New Century Companies, Inc. (OTCBB: NCNC)
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Spot Report - May 07, 2007
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Company:
New Century Companies, Inc.
9835 Santa Fe Springs Rd.
San Fe Springs, CA 90670
Phone: (562) 906-8455
Fax: (562) 906-8459
www.newcenturyinc.com
Share Data:
Symbol: OTCBB: NCNC
Recent Price: $0.69
52-Week Price Range: $0.84-0.13
Shares Outstanding: 12.2 million
Market Cap: $8.3 million
Balance Data Sheet:
Total Assets: $3.9 million
Long-Term Debt: $210,000
Shareholder's Equity: $1.5 million
Book Value Per Share: $0.12
Investment Highlights
- New Century Companies is engaged in acquiring, remanufacturing, and selling new and pre-owned "computer numerically controlled" (CNC) machine tools to manufacturing companies.
- The company's machine tools services are used by a number of large industries including aviation, power generation, energy, mining, and construction, among others.
- New Century provides clients with savings of 40% to 60% per machine by refurbishing old machines, updating them to current technological standards, and making them viable within two to four months (versus nine months to a year to produce a new machine).
- With its competition located mainly in Japan and Europe, New Century is one of the few distributors of CNC Vertical Turning machines of its size in the U.S.
- With China's ongoing infrastructure rebuild requiring massive amounts of machinery, many of New Century's competitors are geographically closer to China and have focused their efforts on that market, creating a significant opportunity for New Century in the U.S.
Next time you are on a plane, give thanks to David Duquette as it lands safely. His New Century Companies machinery makes vital components without which the aircraft engines would not work - and that unheralded but pivotal position in some of America's most vital industries is bringing this company to the attention of a growing band of investors. Based in Santa Fe Springs, New Century essentially takes old machine tools, strips them to bare cast iron, spruces them up and brings them up to date with computer controls and new components. The result? Duquette and his team are able to sell the finished products that both cost less than new machinery and don't contribute as much pollution as the original manufacturing process.
With access to a wide range of markets including aviation, military equipment, wind farms, construction, nuclear waste, oil and gas, mining, ship-building, highways and railroads, the company is confident that its 2007 cash flow will remain positive - its diversified portfolio should help to prevent any losses in a notoriously volatile industry. In addition, the U.S. machine tool industry virtually disappeared under the weight of Japanese competition in the early 1990s, making the re-entry of New Century's competitors costly and unlikely and giving the company a distinct advantage. According to Duquette, the company's neat progression in recent quarters and its plans to cater more to international markets will only fuel its future growth.
Recommendation
With management owning 17% of the outstanding shares, New Century Companies has been turning in the kind of results that will only increase the value of its stock. The company's goal is to become the leading provider of high- precision, computer numerically controlled (CNC) turning centers in North America.
As a natural extension of the company's precision machine tool business, New Century plans to capitalize on numerous opportunities in the fragmented machining industry by implementing a roll-up strategy that includes merging with or acquiring high precision large metal ring manufacturing companies. This strategy is intended to attract the attention of the leading manufacturing companies by ramping up revenue and income. It is also intended to position the company as a potential acquisition target.
Having moved into a larger facility in 2002, the company now has the capacity to produce over 60 machines per year, tripling its previous capacity. With the ability to handle numerous orders for larger (over 60 inch) machines, New Century will benefit from increased sales volume while maintaining readily available machines in inventory, which carry higher margins and greater competitive advantages.
This year, New Century anticipates customer orders to reach at least $15 million, up 43% from the $10.5 million recorded in 2006. So far, the company continues to see an increase in the volume of orders for its remanufactured products, particularly its computer numerically controlled vertical turning centers (VTC).
During the first two months of 2007, the company received $3.2 million in new orders for six VTCs and one large CNC horizontal lathe from customers in the aerospace, energy and defense industries. These orders come on the heels of a strong fourth quarter in 2006, during which the company recorded $4.5 million in orders for VTCs.
Management attributes the company's order growth to two key factors in particular. First, the company's widening customer base has generated repeat business and referrals. In fact, one customer that bought two VTCs in 2006 ordered two more early in 2007. Right now, New Century has more than 300 machines in operation. Second, there is growing demand for very large turning machines to make components for the massive jet engines used on the Airbus A380 and the Boeing 787 Dreamliner. Four of the six VTCs that were recently ordered will be used to produce jet engine parts.
"Our diversified mix of customers, ranging across the sectors from energy and construction to transportation and defense, puts us in a strong position to benefit from the continued overall growth of the economy," says David Duquette, president and CEO of New Century. "We are getting an extra boost from the demand for large VTCs to produce parts for the next generation of jet engines. And even if economic growth slows somewhat, our low-cost remanufacturing model will give us an advantage with increasingly cost-conscious potential customers."
Company Background
New Century Companies is one of the leading U.S.-based makers of refurbished machine tools, primarily vertical boring mills and large lathes such as vertical turning centers. Its computer numerically controlled machines offer increased precision at a lower cost, and can be produced more quickly than brand new machinery. Prior to May 25, 2001, the company was engaged in the business of marketing services to other companies wanting to reach the Hispanic market. However, due to difficulty in raising additional working capital to execute the business plan, the company ceased its operations and completed a reverse merger.
On May 25, 2001, New Century entered into a plan of reorganization and merger with New Century Remanufacturing. As part of the deal, all of the outstanding shares of NCR were exchanged for shares of the company on a 1 to 833.33 basis. The company issued a total of 4.1 million shares of common stock. Immediately after the merger, all existing officers and directors of the company resigned and the management of NCR was elected and appointed. Although NCR became a wholly owned subsidiary of the company following the transaction, because the transaction resulted in a change of control, it was recorded as a reverse merger whereby NCR was considered to be the accounting acquirer of the company. After the merger the company changed its name to New Century Companies.
The Right Tools for the Trade
For the past six years, New Century has been engaged in acquiring, re-manufacturing and selling preowned CNC machine tools to manufacturing customers. It 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 priced anywhere from $275,000 to $1 million. This is about 40 to 50% the price of a new machine. The company also manufactures original equipment, CNC large turning lathes, and attachments under the trade name Century Turn.
CNC machines use commands from onboard computers to control the movements of cutting tools and rotation speeds of the parts being produced. Computer controls enable operators to program operations such as part rotation, tooling selection and tooling movement for specific parts and then store the programs in memory for future use. What's more, 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. This generally results in 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.
The primary industry segments in which New Century'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 in the U.S., Canada and Mexico.
Today, remanufacturing accounts for about 70% of New Century's machine tool sales. Its customer base is a who's who of durable goods manufacturers, including General Electric, General Dynamics, Siemens AG, and Gardner Denver, among other big names.
New Century's manufacturing facilities consist of two 20,000 square foot bays and one executive office space.
The Tools
ACT is focused on three product areas:
The Horizontal Turning Lathe is relatively new to the metal-working industry. These machines efficiently produce metal rings up to 72 inches in diameter with a maximum turning weight of 5,000 lbs. Precision is achieved with a laser-tuning and alignment process that measures to 1/10,000 of an inch. This tool is used to produce fine-tuned parts used in aircraft engineering.
Over the last four years, New Century has designed and developed a large horizontal CNC turning lathe with productivity features new to the metalworking industry. The company has applied for a patent for the Century Turn Lathe. In addition to the markets already mentioned, the company believes that the new technology can also be used to manufacture aircraft landing gear.
Vertical Turning Lathes are capable of turning cylindrical parts using the CNC device to increase productivity and cost 40 to 60% less than comparable newer machines. One major advantage of a vertical turning machine is that it permits the production of larger, heavier and more oddly shaped parts on a machine, and 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.
Boring Mills
This tool is used to increase the size of a previously bored hole in a machine or device. Because of the shape of the instrument, larger and heavier parts can be bored with more precision than older generations of horizontal turning machines. This instrument can produce metal rings up to 20 feet or more in diameter. This tool also allows cutting precision up to
1/10,000 of an inch.
Market Opportunity
With the global market for machine tools estimated at approximately $30 billion a year, New Century is in an ideal position to increase market-share. Its current strategy is to expand its customer sales base with its present line of machine products, while growing through strategic acquisitions. The potential market for the company's line of remanufactured tools has been estimated at more than $600 million.
Corporate Strategy
On May 25, 2001, the company merged with New Century Remanufacturing, Inc. After merging, the company renamed themselves as New Century Companies, Inc. It aims not only to keep expenses lower by recycling used metal, but to keep labor low using computer-controlled devices. With only 48 full-time employees, New Century provides turn-around rates months before other companies that are more labor-intensive. The company plans to become the leading provider of Computer Numerically Controlled machinery through natural growth and strategic acquisitions.
There are three phases to its strategy:
Phase I:
Higher profit requires higher output, which in turn, requires larger working facilities. In 2002, the company moved into a large facility that can now produce over 60 machines yearly, which tripled its previous accomplishments. Before moving into the larger facility, it was hard for the company to take larger orders, turning a majority of potential customers elsewhere. Now the company has the ability to capture multiple machine orders allowing over 60 inch machines into their warehouse. This larger facility also allows for a higher inventory making certain turnaround rates instantaneous.
Phase 2:
While New Century primarily markets its products through direct sales and other independent distributors throughout the American continent, there are plans to market itself in industrial trade magazines, trade shows, and the Internet as well. Its focus is set on advertising its new horizontal and vertical boring mills. These tools are designed around its tooling changer that allows for a wider range of tooling heads, which increases the efficiency, precision, and stability of the machines.
Phase 3:
In addition to its own growth as a company, plans are being made for other future prospects. The company hopes to use a "roll-up" strategy, where the company can merge with, or acquire, other similar companies and metal ring manufacturers. By employing this method, its hopes are to attract the attention of leading companies by increasing revenue and income significantly within a short period of time.
Revenue
The company recently announced that it has received new orders totaling $3.2 million, to be recognized by the close of Q2 2007. The orders are for six computer-numerically-controlled (CNC) vertical turning centers (VTCs) and one large CNC horizontal lathe. The VTCs are being purchased by manufacturers and machine shops in Ohio, Wisconsin, Texas and Connecticut, and will be used to produce components for jet engines, oil and gas pumps and wind-energy systems. The horizontal lathe is being sold to a Southern California aerospace firm to be used in the manufacture of rocket nose cones. According to CEO David Duquette, this new group of orders shows the company's wide reach both geographically and across economic sectors.
This came after fourth quarter of 2006' orders for eight vertical turning centers totaling $4.5 million placed the company's full-year 2006 orders at $10.5 million, within the previously announced target range of $10-$12 million. This represented an increase of 74% from the $6.04 million reported in 2005.
Risks
New Century will continue to rely upon external financing sources to meet the cash requirement of its ongoing operations. It is currently seeking additional capital in the form of equity or debt. However, there is no guarantee that it will be able to raise sufficient capital to execute its business plan. To the extent that the company is unable to raise sufficient capital, its business plan will require substantial modification and its operations curtailed.
Management
David Duquette
Chairman, President, CFO, and Director
Mr. Duquette has been in the CNC machine tool manufacturing and remanufacturing business since 1967. From 1962 to 1965, he studied Electrical Engineering at the University of Wisconsin. Mr. Duquette founded New Century Remanufacturing in 1996. Prior to that year, he managed Orange Coast Rebuilding for approximately 8 years. Mr. Duquette was President of U.S. Machine Tools from 1969 to 1985.
Josef Czikmantori
Secretary and Director
Born in Romania, Mr. Czikmantori completed three years of technical college in Romania and then worked for United Machine Tool, which manufactured metal cutting machinery. He joined Mr. Duquette at Orange Coast Machine Tools. He is a co-founder of New Century Remanufacturing.
This spot report is based upon information provided by management of New Century Companies, Inc. The information is not intended to be and shall not constitute, an offer to sell or solicitation of any offer to buy any security. It is intended for information only and to increase awareness of New Century Companies, Inc. services. Safe Harbor Statement: The statements in this document relating to future product availability, collaboration and partnership and positive direction are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some or all of the aspects anticipated by these forward-looking statements may not, in fact, occur. Factors that could cause or contribute to such differences include, but are not limited to, contractual difficulties, demand for New Century Companies, Inc. products, the future market price of New Century Companies, Inc. common stock and the Company's ability to obtain necessary future financing. EQUITIES Magazine was paid $3,500 by New Century Companies, Inc. to write this spot report. Before investing in any security, you are strongly advised to review all public filings of the issuer of such security, which can be found at www.sec.gov, as well as the warnings published by the Securities and Exchange Commission at http://www.sec.gov/investor.shtml.
— By Arnaldo Arroyo
