10-Q 1 form10qnewfiber.htm QUARTERLY REPORT ON FORM 10Q FOR THE QUARTER ENDED JUNE 30, 2007UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 10-Q(Mark One)þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007[]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM __________  TO _________________Commission file number: 000-30021NEW FIBER CLOTH TECHNOLOGIES, INC,(Exact name of registrant as specified in its charter)Nevada84-1492104(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)PO Box 461029, Glendale, CO80246(Address of Principal Executive Offices)(Zip Code)(303) 394-1187(Registrants Telephone Number, Including Area Code)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 þ No  []Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)Large accelerated filer []      Accelerated filer []      Non-accelerated filer þIndicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).[] Yes       þ NoThe number of shares outstanding of the registrant’s Common Stock, as of May 29, 2007, is 75,340,816 common share.  1     TABLE OF CONTENTSPagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as at June 30, 2007 and December 31, 20063Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2007 and 20065Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2007 and 2006

Notes to  Condensed Consolidated Financial Statements6

8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations29Item 3. Quantitative and Qualitative Disclosure about Market Risk31Item 4. Controls and Procedures32PART II. OTHER INFORMATIONItem 1. Legal Proceedings33Item 1A. Risk Factors33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds33Item 3. Defaults Upon Senior Securities33Item 4. Submission of Matters to a Vote of Security Holders33Item 5. Other Information33Item 6. Exhibits34SIGNATURES35EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32  2     PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCONDENSED CONSOLIDATED BALANCE SHEETAS OF JUNE 30, 2007 AND DECEMBER 31, 2006(Stated in US Dollars)NotesAs ofJune 30,December 31,20072006ASSETSCurrent assetsCash and cash equivalents$635,948$2,197,861Restricted cash8,145,8649,498,923Marketable securities14825,640Notes receivable-1,535,592Accounts receivable14,021,4119,697,813Inventories43,184,9323,097,221Advances to suppliers4,930,0733,635,669Other receivables711,905,85610,392,109Total current assets$42,824,232$40,080,828Land use rights5285,660282,536Long-term notes receivable--Construction in progress3,015,3722,845,259Plant and equipment, net66,943,5367,239,058TOTAL ASSETS$53,068,800$50,447,681  3     CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)AS OF JUNE 30, 2007 AND DECEMBER 31, 2006(Stated in US Dollars)NotesAs ofJune 30,December 31,20072006LIABILITIES AND STOCKHOLDERS EQUITY(Unaudited)(Audited)Current liabilitiesAccounts payable$7,494,581$6,254,717Short-term bank loans95,219,8094,999,800Notes payable12,292,78112,954,610Accrued liabilities143,54249,635Customers deposits2,820,3352,601,077Other payables8547,4421,397,161Income tax payable2,295,2922,093,577Total current liabilities$30,813,782$30,350,577TOTAL LIABILITIES$30,813,782$30,350,577STOCKHOLDERS’ EQUITYCommon stock11$75,341$75,341Additional paid in capital72,22572,225Capital reserves8,465,3278,465,327Surplus reserves1,967,1831,512,308Accumulated other comprehensive income787,237580,287Retained earnings10,887,7059,391,616$22,255,018$20,097,1047TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$53.068,800$50,447,681See notes to condensed consolidated financial statements  4     CONDENSED CONSOLIDATED STATEMENTS OF INCOMEFOR THE THREE MONTHS ENDED JUNE 31, 2007 AND 2006(Unaudited)(Stated in US Dollars)Three months ended June 30,Six months ended June 30,Notes2007200620072006Net sales$14,345,426$12,572,307$26,598,887$20,090,898Cost of sales(13,035,503)(11,038,515)(24,501,160)(17,499,371)Gross profit$1,309,923$1,533,792$2,097,727$2,591,527Selling and distributing costs(89,155)(106,777)(222,163)(246,616)Administrative and other operating expenses(171,463)(418,835)(309,536)(516,077)Income from operations$1,049,305$1,008,180$1,566,028$1,828,834Interest expenses, net(175,464)(139,478)(315,597)(275,989)Other income318,971306,696628,240613,397Income before taxes$1,192,812$1,175,398$1,878,671$2,166,242Non-operating expenses-(595)-(909)Income tax12(144,040)(142,346)(225,448)(259,980)Income after taxes$1,048,772$1,032,457$1,653,223$1,905,353Minority interests----Net income$1,048,772$1,032,457$1,653,223$1,905,353Earnings Per Share :Basic ( Number of common stock: 75,340,816 shares)  0.01390.01370.02190.0253Diluted ( Number of common stock: 75,340,816 shares) 0.01390.01370.02190.0253There is no dilutive financial instruments being outstanding as at June 30, 2007 and therefore the Basic and Diluted Earnings Per Share is the sameSee notes to condensed consolidated financial statements  5     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006(Unaudited)(Stated in US Dollars)Six months ended June 30,20072006Cash flows from operating activitiesNet income$1,653,223$1,905,353Depreciation370,745823,203Amortization3,3793,218Increase in accounts receivable(4,323,598)(4,007,925)Increase in inventories(87,711)(903,804)Increase in advance to suppliers(1,294,404)(1,589,900)Increase in other receivables(1,513,747)(6,829,985)Increase in accounts payable1,212,1332,432,840Increase in taxation payable201,715246,397Increase in customer deposits219,258874,586(Decrease)/increase in accruals and other payables(755,812)1,873,515Net cash used in operating activities$(4,314,819)$(5,172,502)Cash flows from investing activitiesProceeds in notes receivable1,535,5924,811,109Investment in marketable securities25,49212,247Purchase of plant and equipment(354,862)(671,048)Sales proceed from plant and equipment----Net cash provided by investing activities$1,206,222$4,152,308Cash flows from financing activitiesProceeds of short-term bank loans$200,009$255,651Decrease/increase in restricted cash1,353,059(2,240,344)(Repayment)/inception of capital lease-(38,398)(Repayment)/proceeds of notes payable(661,829)2,775,415Net cash (used in)/provided by financing activities$891,239$752,324  6     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006(Unaudited)(Stated in US Dollars)Six months ended June 30,20072006Net decrease in cash and cash equivalents$(2,217,358)$(267,870)Effect of foreign currency translation on cash and cash equivalents655,445340,561Cash and cash equivalents - beginning of period2,197,861998,562Cash and cash equivalents - end of period$635,948$1,071,253Supplementary cash flow informationInterest paid$356,018$290,044See notes to condensed consolidated financial statements  7     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)1.  BASIS OF PRESENTATIONThe accompanying condensed consolidated financial statements of the New Fiber Cloth Technology, Inc. (the Company) and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America for interim consolidated financial information.  Accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements.In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month periods have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year.  These condensed financial statements should be read in conjunction with the consolidated financial statements and the notes for the year ended December 31, 2006.2.  ORGANIZATION AND PRINCIPAL ACTIVITIESNew Fiber Cloth Technology, Inc. (the Company) formerly Park Hill Capital III Corp., was incorporated in the State of Nevada, United States on March 2, 1999.On July 31, 2006, the Company underwent a reverse-merger with Polara Global Limited (Polara), a British Virgin Islands international business company, and its subsidiary as detailed in 2(b) Consolidation below, involving an exchange of shares (Share Exchange) between the Company and Polara. Pursuant to the Share Exchange, the Company changed its name to New Fiber Cloth Technology, Inc. and effectuated an increase in the Company's authorized common stock from 25,000,000 to 200,000,000. The Company issued to the shareholders of Polara Global Limited, an aggregate of 73,834,000 shares of the Company's common stock, constituting ninety-five percent (95%) of the Company's total issued and outstanding common stock as of the closing date of July 31, 2006. As of July 31, 2006, the Company's total issued and outstanding common stock was 77,720,000. For financial reporting purposes, this transaction is classified as a recapitalization of New Fiber Cloth Technology, Inc. and the historical financial statements of Polara. The accompanying audited consolidated financial statements were retroactively adjusted to reflect the effects of the recapitalization.Pursuant to the terms of the Share Exchange Agreement which the number of common stock being outstanding has been reduced to  75,340,816 shares as there is no fund-raising exercise of $5,000,000 occurred with 120-day of the Closing of the Share exchange transaction which has been described in Note 12 in detail.The Company is principally engaging in the holding of investments, and the selling of fashion clothes materials.  8     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(Unaudited)(Stated in US Dollars)3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Method of AccountingThe Group maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The consolidated financial statements and notes are representations of management. Accounting policies adopted by the Group conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of consolidated financial statements, which are compiled on the accrual basis of accounting.(b) ConsolidationThe consolidated financial statements include the accounts of New Fiber Cloth Technology Inc. (the Company) and its subsidiaries (the Group). Significant intercompany transactions have been eliminated in consolidation.As of June 30, 2007, the particulars of the subsidiaries are as follows:Name of companyPlace of incorporationDate of incorporationAttributable equity interest %Issued capitalPolara Global LimitedBritish Virgin Islands20-Jan-99100US$50,000Wujiang Deyi Fashions Cloths Company Limited (Deyi)Peoples Republic of China29-Apr-00100US$10,000,000Deyi manufactures, dyes and sells fashion clothes materials. The products are distributed in Asia, Europe, North America, Australia and Africa.(c) Use of estimatesThe preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.  9     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(Unaudited)(Stated in US Dollars)3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(d) Economic and political risksThe Groups operations are conducted in the PRC. Accordingly, the Groups business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.The Groups operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Groups results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.(e) ConcentrationsThe Group has three major markets which accounted for the following percentages of total sales and total accounts receivable for the three months ended June 30, 2007 and 2006:RevenueAccounts receivable2007200620072006(Unaudited)(Unaudited)(Unaudited)(Unaudited)Asia61%57%86%85%Europe32%36%11%12%Others7%8%3%3%Total100%100%100%100%(f) Land Use RightsLand use rights are being amortized by the straight-line method over the respective lease terms ranging from 44 to 50 years.  10     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(g) Plant and equipmentPlant and equipment are carried at cost less accumulated depreciation.  Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:Buildings20 yearsMachinery10 yearsMotor vehicles5 yearsOffice equipment5 yearsOther equipment5 yearsThe cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.(h) Accounting for the Impairment of Long-Lived AssetsThe long-lived assets held and used by the Group are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes.  Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.During the reporting years, there was no impairment loss.(i) Construction in progressConstruction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.(j) InventoriesInventories consisting of raw materials, work-in-progress and finished goods are stated at the lower of weighted average cost or market value.  Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.  11     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(k) Trade ReceivablesTrade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts.  An estimate for doubtful accounts is made when collection of the full amount is no longer probable.  Bad debts are written off as incurred.(l) Advances to suppliersAdvances to suppliers represent the cash paid in advance for purchasing raw materials.(m) Cash and cash equivalentsThe Group considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Group maintains bank accounts only in the PRC. The Group does not maintain any bank accounts in the United States of America.(n) Restricted CashRestricted cash represents time deposits on account to secure notes payable.(o) Marketable SecuritiesThe Groups investment in marketable securities consists of an investment in a Chinese open-ended fund that invests in Chinese corporate equity securities. The Groups investment is classified as available-for-sale.  In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, unrealized gains and losses on this investment is included in other comprehensive income, a separate component of shareholders equity. Realized gains and losses from the sales of marketable securities and declines in value considered to be other than temporary are to be included in other income (expense).  12     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(p) Foreign currency translationThe accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Group is the Renminbi (RMB).  The consolidated financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.June 30,December 31,20072006Year end RMB : US$ exchange rate7.62487.8003Average RMB : US$ exchange rate7.72997.9637The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.  No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.(q) Revenue recognitionRevenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met:-Persuasive evidence of an arrangement exists,-Delivery has occurred or services have been rendered,-The sellers price to the buyer is fixed or determinable, and-Collectibility is reasonably assured. Payments have been established.  13     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(r) Income taxesThe Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years.  Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or that future realization is uncertain.The Management believes that one of the Companys subsidiaries, Polara Global Limited, which is a British Virgin Island incorporated company that has not been carrying out any business activity in Hong Kong, has accepted certain trading receipt from businesses concluded outside Hong Kong, which Management believes that there should be no Hong Kong profits tax exposure.  However, for the sake of prudence, there is Hong Kong profits tax of 17.5% being provided on the loss of Polara Global Limited as nil for the three months ended June 30, 2007 and 2006 respectively in accordance with the relevant tax laws and regulations of Hong Kong.Deyi is operating in the PRC, and in accordance with the relevant tax laws and regulations of PRC, the corporation income tax rate is 33%. However, also in accordance with the relevant taxation laws in the PRC, from the time that a company has its first profitable tax year, a foreign investment company is exempt from corporate income tax for its first two years and is then entitled to a 50% tax reduction for the succeeding three years. The Companys first profitable tax year was 2003. The Company will be levied at the 33% tax rate in 2008. As such, the Companys income tax expense for the three months ended June 30, 2007 and 2006 was $142,346 and $144,040 respectively.(s) AdvertisingThe Group expensed all advertising costs as incurred.  Advertising expenses included in selling and distribution expenses were $8,210 and $7,714 for the three months ended June 30, 2007 and 2006 respectively.(t) Shipping and handlingAll shipping and handling are expensed as incurred and outbound freight is not billed to customers.  Shipping and handling expenses included in selling and distribution expenses were $23,494 and $52,308 for the three months ended June 30, 2007 and 2006 respectively.  14     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(u) Surplus reservesSurplus reserves for foreign investment enterprises are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.Surplus reserves consist of the following as of,June 30,December 31,20072006(Unaudited)(Audited)Enterprise reserve fund$737,074$557,166Enterprise expansion fund737,074557,166Employee welfare fund493,035397,976$1,967,183$1,512,308(v) Comprehensive incomeComprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.  Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other consolidated financial statements. The Groups current components of other comprehensive income are the foreign currency translation adjustment.  15     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(w) Recent accounting pronouncementsIn May 2005, the FASB issued a SFAS 154, Accounting Changes and Error Corrections to replace APB Opinion No. 20, Accounting Changes and SFAS 3, Reporting Accounting Changes in Interim Financial Statements requiring retrospective application to prior periods consolidated financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, SFAS 154 requires the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period rather than being reported in an income statement.  When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, SFAS 154 requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable.The effective date for this Statement is for accounting changes and corrections of errors made in fiscal year beginning after December 15, 2005.In February 2006, the FASB issued a SFAS 155, Accounting for Certain Hybrid Financial Instruments to amend FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation and eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.  This statement is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006.The Group does not anticipate that the adoption of these two standards will have a material impact on these consolidated financial statements.  16     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)4.   INVENTORIESAs ofJune 30,December 31,20072006(Unaudited)(Audited)Raw materials$1,763,837$1,861,450Work in progress666,100992,177Semi finished goods--Finished goods754,995243,594$3,184,932$3,097,2215.   LAND USE RIGHTSAs ofJune 30,December 31,20072006(Unaudited)(Audited)Cost of land use rights$320,519$314,015Less: Accumulated amortization(34,859)(31,479)Land use rights, net$285,660$282,536Amortization expense for the three months ended June 30, 2007 and 2006 was $1,716 and $1,603 respectively.  17     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)6.   PLANT AND EQUIPMENTPlant and equipment consist of the following as of :As ofJune 30,December 31,20072006(Unaudited)(Audited)Building$1,751,179$1,711,777Machinery8,864,4778,570,865Motor vehicles418,988409,561Office equipment370,802358,948Other equipment25,21524,648$11,430,661$11,075,799Less: Accumulated depreciationBuilding$424,128$376,070Machinery3,525,4673,014,745Motor vehicles246,086199,593Office equipment270,629228,451Other equipment20,81517,882$4,487,125$3,836,741$6,943,536$7,239,058Depreciation expense for the three months ended June 30, 2007 and 2006 was $370,745 and $196,466 respectively.The Group leases certain machinery to an unrelated company with a term from January 1, 2006 through December 31, 2009. The rental income for the three months ended June 30, 2007 and 2006 are $78,035 and $73,926 respectively. The depreciation of the leased machinery for the three months ended June 30, 2007 and 2006 are $10,494 and $17,303 respectively. The net amount of $67,541 and $56,623 are included in other income in the accompanying consolidated statement of income for the three months ended June 30, 2007 and 2006. The total net book value of the machinery at June 30, 2007 and December 31, 2006 were $487,654 and $520,932.  18     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)7.   OTHER RECEIVABLESOther receivables consist of the following as of:As ofJune 30,December 31,20072006(Unaudited)(Audited)Amounts due from directors$3,064$-Amounts due from employees533,376427,680Sundry receivables11,369,4169,964,429$11,905,856$10,392,109All the amounts due from directors/employees are unsecured, interest free, and have no fixed repayment terms.8.    OTHER PAYABLESOther payables consist of the following as of:As ofJune 30,December 31,20072006(Unaudited)(Audited)Amounts due to employees$381,598$215,376Amounts due to directors60,343384,612Deposit received105,501797,173$547,442$1,397,161All the amounts due to employees and directors are unsecured, interest free, and have no fixed repayment terms.  19     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)9.  SHORT-TERM BANK LOANSShort-term bank loans are as follows:As ofJune 30,December 31,20072006(Unaudited)(Audited)Loans from Bank of China, interest rates at 6.417%-5.859%  and 6.48% per annum, respectivelyDue February 28, 2007$-$333,320Due March 3, 2007-371,780Due March 5, 2007-320,500Due March 20, 2007-256,400Due June 21, 2007-538,440Due September 6, 20071,154,128-Due September 13, 2007262,302-Due December 22, 2007550,834-$1,967,264$1,820,440Loans from Rural Credit Union,interest rate at 8.928% per annumDue September 15, 2007393,453-Due November 29, 2007262,302-655,755-Loans from Wujiang Country Commercial Bank,Interest rate at 8.06% per annumDue May 27, 2007$-$256,400Due June 19, 2007-384,600$-$641,000  20     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)9.  SHORT-TERM BANK LOANSShort-term bank loans are as follows:As ofJune 30,December 31,20072006(Unaudited)(Audited)Loan from China Ever Bright Bank, interest rate at5.85% and 6.39% per annum, respectivelyDue May 6, 2007$-$615,360Due May 8, 2008629,525-$629,525$615,360Loan from China CITIC Bank, interest rate at 6.732%And 6.003% per annum, respectivelyDue January 13, 2007$-$641,000Due January 24, 2008655,755-$655,755$641,000Loan from China Merchants Bank, interest rate at6.138% and 6.435% per annumDue June 2,2007$-$1,282,000Due August 1, 20071,311,510-1,311,5101,282,000$5,219,809$4,999,800All of the short-term bank loans due in 2006 were paid on their due dates.  Interest expense was $375,238 in 2006 and $275,981 for the three months ended June 30, 2007, respectively. The principal amounts of the short-term bank loans are paid at the due dates and interest is paid quarterly.  21     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)10.  NOTES PAYABLENotes payable are as follows:As ofJune 30,December 31,20072006(Unaudited)(Audited)Secured notes to Bank of China, bank commissioncharge at 0.05% each transactionDue March 1, 2007$-$128,200$-$128,200Secured notes to China Ever Bright Bank, bankcommission charge at 0.05% each transactionDue March 10,2007$-$1,025,600Due March 15, 2007-1,128,160Due March 26, 2007-833,300Due April 3, 2007-858,940Due April 17, 2007-1,230,720Due April 24, 2007-641,000Due April 27, 2007-717,920Due August 1, 2007655,755-Due September 20, 2007878,712-Due September 28, 2007865,597-Due October 16, 2007734,445-Due October 17, 20071,259,049-Due October 22, 2007655,755-$5,049,313$6,435,640  22     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)10.  NOTES PAYABLE (CONTINUED)As ofDecember 31,June 30,December 31,June 30,December 31,2007200620072006(Unaudited)(Audited)(Unaudited)(Audited)Secured notes to China Merchants Bank, bank(Unaudited)(Audited)commission charge at 0.05% each transactionDue April 16, 2007$-$1,153,800Due May 14, 2007-1,410,200Due June 29, 2007-256,400Due August 15, 2007786,906-Due October 16, 20071,180,359-Due November 16, 2007472,143-$2,439,408$2,820,400Secured notes to Shengze Rural Commercial Bank,bank commission charge at 0.05% each transactionDue April 30, 2007$-$153,840Due May 6, 2007-102,560Due May 30, 2007-153,840Due July 25, 200765,575-Due November, 2007131,151-$196,726$410,240Secured notes to  Minsheng Bank, bankcommission charge at 0.05% each transactionDue April 30, 2007$-$1,282,000Due July 11, 20071,311,510-Due September 3, 20071,311,510-Due December 11, 2007393,453-3,016,4731,282,000  23     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)10.  NOTES PAYABLE (CONTINUED)As ofAs ofJune 30,December 31,June 30,December 31,2007200620072006(Unaudited)(Audited)(Unaudited)(Audited)Secured notes to China CITIC Bank, bankcommission charge at 0.05% each transactionDue January 21, 2007$-$769,200Due January 26, 2007-512,800Due January 31, 2007-128,200Due February 2, 2007-102,560Due February 22, 2007-38,460Due February 28, 2006-83,330Due March 21, 2007-38,460Due March 30, 2006-102,560Due June 8, 2007-102,560Due July 26, 2007524,604-Due July 26, 2007786,906-Due September 6, 200782,625-Due October 30, 2007196,726-$1,590,861$1,878,130$12,292,781$12,954,610The bank charges 0.05% of the principal as a commission on each loan transaction. The bank commission charges were $10,141 in 2006 and $4,575 for the three months ended June 30, 2007, respectively, and are included in interest expense, net in the accompanying consolidated statements of income.  24     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)11. COMMON STOCKThe common stock of the company is as follows immediate upon the close of recapitalization during the Year 2006:As of the date before the recapitalization of Polara Global Limited with the non-operating shell-Park Hill Capital III, Inc., effected through a Share Exchange transaction, the shareholders composition of Polara Global Limited is as follows:-NameShares OwnedPercentage of Polara Common StockYao DeRong15,00030.00%Itochu Textile Materials (Asia) Limited12,20024.40%Yao YunZhen4,0008.00%Yao YunHong4,0008.00%Ren WeiRong4,0008.00%Tang ShengLi4,0008.00%Realty Century Management Ltd1,0002.00%Good Result Investment Co. Ltd1,0002.00%Ye GenZhen1,0002.00%Gain For Success Enterprises Ltd1,0002.00%Sheng MeiZhen1,0002.00%Ma Binliang9001.80%Ma Wenying9001.80%Total50,000100%  25     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)11. COMMON STOCK (CONTINUED)The following table sets forth the beneficial ownership of persons who owned more than five percent of the Companys Common Stock prior to the closing of the Share Exchange, and the share holdings of the then members of Park Hill Capital III, Inc.s management, such computations being based upon the 3,886,000 shares of our Common Stock that were then outstanding:NamePositions HeldShares OwnedPercentageJohn P. O'Shea1,000,00025.73%Deborah A. SalernoDirector/President1,000,00025.73%Frank L. KramerDirector/Secretary/Treasurer1,150,00029.60%Others736,00018.94%Total3,886,000100%Upon the consummation of the Share Exchange which is characterized as a recapitalization of Polara Global Limited through Park Hill Capital III, Inc., the following table sets forth the beneficial ownership of persons who owned more than five percent of our Common Stock following the closing of the Share Exchange, and the share holdings of the new members of our management, such computations being based upon the 77,720,000 shares of our Common Stock that are or will be outstanding following the closing of the Share Exchange and the original Directors of Park Hill Capital III, Inc. have resigned.NamePosition Held in ManagementShared held Post-RecapitalizationPercentageYao DeRongChief Executive Officer/Chairman of the Board22,150,20028.50%Itochu Textile Materials (Asia) LimitedDirector/Shareholder18,015,49623.18%Yao YunZhenManagement5,906,7207.6%Yao YunHongManagement5,906,7207.6%Ren WeiRongDirector/Secretary5,906,7207.6%Tang ShengLiManagement5,906,7207.6%John P. O'Shea1,000,0001.28%Deborah A. Salerno1,000,0001.28%Frank L. Kramer1,150,0001.48%Other Park Hill shareholders Pre-recapitalzation736,0000.95%Others10,041,42412.93%Total77,720,000100.0%  26     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)11. COMMON STOCK (CONTINUED)If the Company consummates a Private Placement Offering of our securities (post Share Exchange) in which we raise not less than $5,000,000 (the "Financing") within 120 days of the closing of the Share Exchange (subject to extension as provided in the Agreement) (the "Escrow Term"), the escrow agent, at the end of the Financing, shall deliver the Escrow Shares to Park Hill Controlling Shareholders and/or other shareholders who delivered the Escrow Shares to the escrow agent.  In this event, the Park Hill Controlling Shareholders and/or our other shareholders holding 3,886,000 shares of Common Stock will own five percent (5%) of Park Hill and the Polara Global Limited Shareholders holding 73,834,000 shares of Common Stock will own ninety-five percent (95%) of Park Hill.However, in the event that the Financing is not consummated in the amount of not less than $5,000,000 during the Escrow Term, the escrow agent shall deliver the Escrow Shares to us and the Escrow Shares shall be cancelled on the Companys stock transfer records.  The Park Hill Controlling Shareholders and/or other shareholders of Park Hill before the recapitalization will then own 1,506,816 shares of Common Stock or two percent (2%) of the issued and outstanding shares of Common Stock and the total number of common stock of the Company is then becoming 75,340,816 shares as below:-NamePosition Held in ManagementShared held Post-RecapitalizationPercentageYao DeRongChief Executive Officer/Chairman of the Board22,150,20029.40%Itochu Textile Materials (Asia) LimitedDirector/Shareholder18,015,49623.91%Yao YunZhenManagement5,906,7207.84%Yao YunHongManagement5,906,7207.84%Ren WeiRongDirector/Secretary5,906,7207.84%Tang ShengLiManagement5,906,7207.84%All Park Hill Shareholders Pre-recapitalization including John P. O'Shea,Deborah A. Salerno andFrank L. Kramer andOther Park Hill Capital III Inc.'s shareholders Pre-recapitalzation1,506,8162.00%Others10,041,42413.33%Total75,340,816100.0%The cancellation of 2,379,184 shares of common stock has been credited to the additional paid-in  capital of the Company as effected according to the above arrangement because there is no Financing exercise of $5,000,000 or more has occurred within the 120-day period after the Closing of Share Exchange when the said 120-day period ends before December 31, 2006.  27     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(Stated in US Dollars)12.  INCOME TAXESThe following table accounts for the differences between the actual tax provision and the amounts obtained by applying the relevant applicable corporation income tax rate to income before tax for the three months ended June 30, 2007 and 2006:Three months ended June 30, 2006 (Unaudited)PRCHong KongTotalIncome before tax$1,175,398$-$1,175,398Tax at the domestic income tax rate$387,881$-$387,881Effect of tax exemption granted(245,535)-(245,535)Income tax$142,346$-$142,346Three months ended June 30, 2007 (Unaudited)PRCHong KongTotalIncome before tax$1,192,812$-$1,192,812Tax at the domestic income tax rate$393,628$-$393,628Effect of tax exemption granted(249,588)-(249,588)Income tax$144,040$-$144,04013. COMPARATIVE AMOUNTSCertain amounts included in prior’s years’ consolidated financial statements have been reclassified to conform to the current year’s presentation on the basis of recapitalization accounting. These reclassifications had no effect on reported total assets, liabilities, shareholders equity or net income.    28    ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  FORWARD LOOKING STATEMENT  The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this quarterly report. This quarterly report contains forward-looking statements. The words anticipated, believe, expect, plan, intend, seek, estimate, project, could, may, and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our managements current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, general economic and business conditions, changes in foreign, political, social, and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to achieve further market penetration and additional customers, and various other matters, many of which are beyond our control. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and there can be no assurance of the actual results or developments.  OPERATION AND FINANCIAL REVIEW  New Fiber Cloth Technology, Inc. (the Company) formerly Park Hill Capital III Corp., was incorporated in the State of Nevada, United States on March 2, 1999.  On July 31, 2006, the Company underwent a reverse-merger with Polara Global Limited (Polara), a British Virgin Islands international business company. Pursuant to the Share Exchange, the Company changed its name to New Fiber Cloth Technology, Inc. and effectuated an increase in the Company's authorized common stock from 25,000,000 to 200,000,000.  The Company has completed a recapitalization process with Polara Global Limited in Year 2006 and our Group consists of the Polara Global Limited which is incorporated in the British Virgin Islands as the holding company for Deyi Fabric Factory, the major operating subsidiary in China. The principal activities of the Group are manufacturing, dyeing and selling fashion clothes materials. The products are distributed to Asia, Europe, North America, Australia and Africa. The Groups business remains unchanged in Year 2007.  There is 32.4% increase in sales revenue in the first six months of 2007 when compare to the first six months in 2006 and with a gross profit margin of 7.9%. The 24% of total sales is brought by the new product line (cotton linen mixed fabric), the remaining 76% of sales is brought by our original product line.  In the second quarter, the Group has got sales revenue of $14,345,426, there is 14% increase in the sales revenue for the three months ended June 30, 2007 compared to the three months ended June 30, 2006. The new product contributed 16% of the sales in the second quarter of 2007.    29    The gross profit margin has been decreased from 12.9% for the six months ended June 30, 2006 to 7.89% for the six months ended June 30, 2007. In the second quarter, the gross profit margin has been decreased from 12.2% for the three months ended June 30, 2006 to 9.13% for the three months ended June 30, 2007. The decrease of the gross profit margin is due to the new product line (cotton linen mixed fabric) put into production. The Company has experienced loss on the new product in the first quarter of Year 2007 due to a lack of production experience in cotton linen mixed fabric.  The new product line started production in the first quarter of 2007. It brought a gross loss of 4% to the Group in the first quarter. As the production technique of cotton linen mixed fabric becomes matured, the new product brought a gross profit of 6.2% to the Group in the second quarter of 2007. The Group has confident that after six months production, the production technique will be more matured and bring a steady profit to the Group in the third quarter.  The new product cotton linen mixed fabric will be a major product of the Company for the whole year as the consumers in China nowadays demand products which are made from natural substance, of higher qualities and are environmentally-friendly. The production of cotton linen mixed fabric suits the consumers demand and the Company has imported advanced machinery from Italy and hired experts in textile from Italy to raise the quality of the products.  Revenue by geographical segmentation  The increase in its business segment of income derived from Asia about 4% more than that in Year 2007 is an expected trend of the above stated market situation. The new product of cotton linen mixed fabric is mainly provided to the customers in Asia. The positive effect on slight increase in such geographical segment sales has made the selling expense per dollar sales being reduced from $0.0084 to $0.0062, representing a 16% of saving in selling and marketing cost that improves the cost-efficiency of the Groups business marketing activities.   FUTURE PLAN  The management put in much effort on overseas marketing and promotion in 2007, such as Europe and United States.  The Company has been successfully negotiated for being one of the designated suppliers of certain textile material for the manufacturers of Adidas brand shirts. It will be a sign of quality of our products. It shows that our products are above standards. We expect a steady growth in this newly-developed market in 2007. The management is of the view that while maintaining the current product mix with the current market that provides a stable income for the Group, it is also important for the Group to plan for new product lines targeting for a higher margin that will contribute more profit and diversified grade of products to the Group, which would then mitigate risk of any intensive competition of current product lines pf the Company that may cause downward trend to the margin to the Company in the future.  FINANCIAL RESOURCES AND LIQUIDITY  The inventory turnover for the six months period ended 2007 is 23 days, the turnover period is shortened by 28 days when compared to 51 days for the six months period ended 2006. The high ratio of inventory turnover represent that the Company has a healthy inventory level and strong sales.   30    The accounts receivables turnover is lengthened by 29 days from 67 days for the six months period ended June 30, 2006 to 96 days for the six months period ended June 30, 2007. The increase in the receivable period is due to a longer credit sales for the new product lines.  The accounts payable turnover for the six months period ended 2007 is 51 days, the accounts payable turnover is shortened by 27 days when compared to 78 days for the six months period ended 2006. the shorter of the accounts payable turnover day is due to the new supplier for the new line products whose give a shorter credit day for the Company.  Even although the Group has got a 27 days decrease in the payables repayment period in the six months period ended June 30, 2007 when compared to the six months period ended June 30, 2006, there is no doubt that the Group has sufficient money for to repay the debts.  The debt to assets ratio represents the debt repayment ability of the Group. The debts to assets ratio of the Group is 58% for the six month period ended 2007 and the total liabilities increased by about $0.8 million, it was primarily due to an increase in notes payables and the tax payables at the six months ended June 30, 2007. The notes payable is increased by 29% when compare to first six months in 2006. Although the liabilities of the Group was increased, it was due to the expansion of the Group.  The Group s business policy of market expansion with prudent evaluation is supported by our principal bankers whom have granted over $12 Millions of short term loans that finance the operating of the Company.   All such short term loans are at an interest rate lower than the gross margin. The interest rate is not more than 9%. The proceeds from short term bank loan and $1,353,059 decrease in restricted cash is sufficient to repay the note payable of $661,829 for 2007. There are sufficient funds from finance activities, there is sufficient money to support the market expansion and the investing activities.  The Management would continue look for any good business opportunities that would further leverage the current financial strength and the management advantages of the Group to further foster the business and enhancing the return to our shareholders with a well-balance risk-and-reward business policy.  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's Common Stock is not quoted for trading on any stock exchange or the National Association of Securities Dealers over-the-counter bulletin board, and there is currently no trading market for the Company's Common Stock.  As such, the Company does not perceive any market risks on its securities.             31     ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES  The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of the end of the period covered by this Quarterly Report.  Based on this evaluation, management concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level.  The Company's management has concluded that the condensed consolidated financial statements included in this Form 10-Q present fairly, in all material respects, the financial position, results of operation and cash flows of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States of America (GAAP).  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING In addition, an evaluation was performed under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any change in our internal control over financial reporting that has occurred during our last fiscal quarter that has materially affected, or is reasonably likely to affect materially, our internal controls over financial reporting. There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.                  32     PART II. OTHER INFORMATION  ITEM 1. LEGAL PROCEEDINGS  The Company is not a party to any legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.  ITEM 1A. RISK FACTORS  There are no material changes from the risk factors as previously disclosed in the registrant's Form 10-K in response to Item 1A. to Part 1 of Form 10-K.  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None.  ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None.  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.  ITEM 5. OTHER INFORMATION  None.                33     ITEM 6. EXHIBITS  Exhibit Description of Documents Number  2 Share and Exchange Agreement dated January 26, 2006, is hereby incorporated by reference to an exhibit to the Company's Form 8-K dated August 4, 2006. 3.1 Articles of Incorporation, as amended, is hereby incorporated by reference to an exhibit to the Company's Form 8-K dated August 4, 2006. 3.2 Certificate of Amendment of Articles of Incorporation, is hereby incorporated by reference to an exhibit to the Company's Form 8-K dated August 4, 2006. 3.3 By-laws of the Company, is hereby incorporated by reference to an exhibit to the Company's Form 8-K dated August 4, 2006. 10 Share and Exchange Agreement dated January 26, 2006, is hereby incorporated by reference to an exhibit to the Company's Form 8-K dated August 4, 2006. 11 Statement regarding computation of earnings per share is hereby incorporated by reference to Page F-6 of the Company's Form 10-K dated May 3, 2007, under the section entitled, Consolidated Statements of Income for the Years Ended December 31, 2006 and 2005. 31.1 Chief Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. 31.2 Chief Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. 32 Chief Executive Officer and Chief Financial Officer Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.                      34     SIGNATURES  Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  NEW FIBER CLOTH TECHNOLOGY, INC.   Date:  August 14, 2007 By:  /s/ Yao DeRong YAO DERONG Chief Executive Officer Date:   August 14, 2007 By:  /s/Qing Hua Sun QING HUA SUN Chief Financial Officer  Date:   August 14, 2007 By:  /s/Huang Wei-Cheng HUANG WEI-CHENG Chief Accounting Officer  35