New Fiber Cloth Technology 10-Q 2007 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

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

FOR THE TRANSITION PERIOD FROM __________  TO _________________

Commission file number: 000-30021

NEW FIBER CLOTH TECHNOLOGIES, INC,

(Exact name of registrant as specified in its charter)

Nevada	84-1492104
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
PO Box 461029, Glendale, CO	80246
(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.

 Yesþ 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 filerþ

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

[] Yes       þ No

The number of shares outstanding of  the registrant’s Common Stock, as of May 29, 2007, is 75,340,816 common share.

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TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as at March 31, 2007 and December 31, 2006		3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2007             and 2006		5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,             2007 and 2006		6
Notes to  Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosure about Market Risk		26
Item 4. Controls and Procedures		26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 3. Defaults Upon Senior Securities		27
Item 4. Submission of Matters to a Vote of Security Holders		27
Item 5. Other Information		27
Item 6. Exhibits		27
SIGNATURES		28
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

AS AT MARCH 31, 2007 AND DECEMBER 31, 2006

(Stated in US Dollars)

	Notes		March 31,			December 31,
			2007			2006
			(Unaudited)			(Audited)
ASSETS
Current assets
Cash and cash equivalents		$	2,497,659	$		2,197,861
Restricted cash			9,065,984			9,498,923
Marketable securities			145			25,640
Notes receivable			-			1,535,592
Accounts receivable			11,489,534			9,697,813
Inventories	4		3,015,473			3,097,221
Advances to suppliers			2,989,742			3,635,669
Other receivables	7		15,870,938			10,392,109
Total current assets		$	44,929,476	$		40,080,828
Land use rights	5		283,040			282,536
Long-term notes receivable			-			-
Construction in progress			2,904,560			2,845,259
Plant and equipment, net	6		7,141,045			7,239,058
TOTAL ASSETS		$	55,258,121	$		50,447,681
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	8,146,309		$		6,254,717
Short-term bank loans	9		5,141,521				4,999,800
Notes payable			12,375,822				12,954,610
Accrued liabilities			136,841				49,635
Customers’ deposits			4,874,051				2,601,077
Other payables	8		5,417,517				1,397,161
Income tax payable			2,135,150				2,093,577
Current portion of capital lease obligations			-				-
Total current liabilities		$	38,227,211	$		30,350,577

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TOTAL LIABILITIES $ 38,227,211 $ 30,350,577

STOCKHOLDERS’ EQUITY
Common stock	11	$	75,341	$	75,341
Additional paid in capital			72,225		72,225
Capital reserves			6,583,058		8,465,327
Surplus reserves			1,959,140		1,512,308
Accumulated other comprehensive income			66,124		580,287
Retained earnings			8,275,022		9,391,616
		$	17,030,910	$	20,097,104
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY		$	55,258,121	$	50,447,681

See notes to condensed consolidated financial statements

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

(Unaudited)

(Stated in US Dollars)

			Three months ended March 31,
	Notes		2007		2006
Net sales		$	12,188,168	$	7,503,135
Cost of sales			(11,404,563)		(6,447,575)
Gross profit		$	783,605	$	1,055,560
Selling and distributing costs			(132,300)		(139,551)
Administrative and other operating expenses			(138,995)		(126,497)
Income from operations		$	512,310	$	789,511
Interest expenses, net			(139,386)		(136,230)
Other income			307,621		306,071
Income before taxes		$	680,544	$	959,352
Non-operating expenses			-		(313)
Income tax	12		(81,667)		(118,491)
Income after taxes		$	598,877	$	840,548
Minority interests			-		-
Net income		$	598,877	$	840,548

Earnings Per Share :

       Basic ( Number of common stock: 75,340,816 shares)                      $0.008              $0.011

       Diluted ( Number of common stock: 75,340,816 shares)                   $0.008              $0.011

There is no dilutive financial instruments being outstanding as at March 31, 2007 and therefore the Basic and Diluted Earnings Per Share is the same

See notes to condensed consolidated financial statements

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Unaudited)
(Stated in US Dollars)
			Three months ended March 31,
			2007		2006
	Cash flows from operating activities
	Net income	$	598,877	$	840,548
	Depreciation		279,639		243,340
	Amortization		1,664		1,603
	Appropriation to minority interests
	Stock issued for services
	(Increase)/decrease in accounts receivable		(1,791,721)		(3,674,589)
	Decrease/(increase) in inventories		81,748		(413,961)
	(Increase)/decrease in advance to suppliers		645,927		(361,377)
	(Increase)/decrease in other receivables		(5,478,829)		(7,656,562)
	Decrease/(increase) in prepaid expenses		-		-
	Increase/(decrease) in accounts payable		1,891,592		732,020
	Increase/(decrease) in taxation payable		41,573		65,402
	Increase/(decrease) in customer deposits		4,874,051		3,157,219
	Increase/(decrease) in accruals and other payables		(1,332,073)		1,808,113
	Net cash (used in)/ provided by operating activities	$	(187,551)	$	(5,258,242)
	Cash flows from investing activities
	Payment in construction in progress	$	(59,301)	$	(17,785)
	Land use rights		(2,169)		(1,329)
	Proceeds in notes receivable		1,535,592		4,811,109
	Investment in a subsidiary		-		-
	Investment in marketable securities		25,495		(12,305)
	Purchase of plant and equipment		(181,626)		(111,961)
	Sales proceed from plant and equipment		-		-
	Net cash provided by/(used) in investing activities	$	1,317,991	$	4,667,729
	Cash flows from financing activities
	(Repayment)/Proceeds of short-term bank loans	$	141,721	$	(240,678)
	Increase in restricted cash		432,939		(733,523)
	(Repayment)/inception of capital lease		-		(9,463)
	Proceeds/(repayment) of notes payable		(578,788)		1,025,562
	Increase/(decrease) in paid-in capital		-
	Increase in common stock		-

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Increase in shareholder contribution		-
Appropriation of statutory reserves and payment		-
of stock dividends to minority shareholders		-
Net cash (used in)/provided by financing activities	$	(4,128)	$	41,899
Net increase (decrease) in cash and cash equivalents	$	1,126,312	$	(548,614)
Effect of foreign currency translation on cash and		(826,514)		104,140
cash equivalents
Cash and cash equivalents - beginning of period		2,197,861		998,562
Cash and cash equivalents - end of period	$	2,497,659	$	554,087

Supplementary cash flow information
Interest paid	$	139,386	$	136,230

See notes to condensed consolidated financial statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Stated in US Dollars)

1.  BASIS OF PRESENTATION

The 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 ACTIVITIES

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, 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.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Method of Accounting

The 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.

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(b) Consolidation

The 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 March 31, 2007, the particulars of the subsidiaries are as follows:

Name of company	Place of incorporation	Date of incorporation	Attributable equity interest %	Issued capital
Polara Global Limited	British Virgin Islands	January 20, 1999	100	US$50,000
Wujiang Deyi Fashions Cloths Company Limited (Deyi)	People’s Republic of China	April 29, 2000	100	US$10,000,000

Deyi manufactures, dyes and sells fashion clothes materials. The products are distributed in Asia, Europe, North America, Australia and Africa.

(c) Use of estimates

The 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.

(d) Economic and political risks

The 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.

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(e) Concentrations

The Group has three major markets which accounted for the following percentages of total sales and total accounts receivable for the three months ended March 31, 2007 and 2006:

	Revenue		Accounts receivable
	2007	2006	2007	2006
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Asia	59%	54%	80%	83%
Europe	30%	38%	16%	14%
Others	11%	8%	4%	3%
Total	100%	100%	100%	100%

(f) Land Use Rights

Land use rights are being amortized by the straight-line method over the respective lease terms ranging from 44 to 50 years.

(g) Plant and equipment

Plant 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:

Buildings	20 years
Machinery	10 years
Motor vehicles	5 years
Office equipment	5 years
Other equipment	5 years

The 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 Assets

The 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.

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(i) Construction in progress

Construction 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) Inventories

Inventories 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.

(k) Trade Receivables

Trade 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 suppliers

Advances to suppliers represent the cash paid in advance for purchasing raw materials.

(m) Cash and cash equivalents

The 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 Cash

Restricted cash represents time deposits on account to secure notes payable.

(o) Marketable Securities

The 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).  

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(p) Foreign currency translation

The 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.

	March 31, 2007	December 31, 2006
Year end RMB : US$ exchange rate	7.7409	7.8003
Average yearly RMB : US$ exchange rate	7.7714	7.9637

The 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 recognition

Revenue 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.

(r) Income taxes

The 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 March 31, 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 March 31, 2007 and 2006 was $81,667 and $118,491 respectively.

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(s) Advertising

The Group expensed all advertising costs as incurred.  Advertising expenses included in selling and distribution expenses were $44,772 and $35,612 for the three months ended March 31, 2007 and 2006 respectively.

(t) Shipping and handling

All 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 $28,078 and $53,561 for the three months ended March 31, 2007 and 2006 respectively.

(u) Surplus reserves

Surplus reserves for foreign investment enterprises are referring o 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,

		March 31,		December 31,
		2007		2006
		(Unaudited)		(Audited)
Enterprise reserve fund	$	733,926	$	557,166
Enterprise expansion fund		733,926		557,166
Employee welfare fund		491,288		397,976
	$	1,959,140	$	1,512,308

(v) Comprehensive income

Comprehensive 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.

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(w) Recent accounting pronouncements

In 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 appropria te 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.

4.   INVENTORIES

		As of
		March 31,		December 31,
		2007		2006
		(Unaudited)		(Audited)
Raw materials	$	2,094,054	$	1,861,450
Work in progress		743,671		992,177
Semi finished goods		-		-
Finished goods		177,748		243,594
	$	3,015,473	$	3,097,221

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5.   LAND USE RIGHTS

		As of
		March 31,		December 31,
		2007		2006
		(Unaudited)		(Audited)
Cost of land use rights	$	316,184	$	314,015
Less: Accumulated amortization		(33,143)		(31,479)
Land use rights, net	$	283,040	$	282,536

Amortization expense for the three months ended March 31, 2007 and 2006 was $1,664 and $1,603 respectively.

6.   PLANT AND EQUIPMENT

Plant and equipment consist of the following as of :

		March 31,		December 31,
		2007		2006
		(Unaudited)		(Audited)
At cost
Building	$	1,724,915	$	1,711,777
Machinery		8,731,525		8,570,865
Motor vehicles		412,704		409,561
Office equipment		363,444		358,948
Other equipment		24,837		24,648
	$	11,257,425	$	11,075,799
Less: Accumulated depreciation
Building	$	398,361	$	376,070
Machinery		3,232,661		3,014,745
Motor vehicles		219,697		199,593
Office equipment		246,524		228,451
Other equipment		19,137		17,882
	$	4,116,380	$	3,836,741
	$	7,141,045	$	7,239,058

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Depreciation expense for the three months ended March 31, 2007 and 2006 was $279,639 and $243,340 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 March 31, 2007 and 2006 are $77,206 and $75,342 respectively. The depreciation of the leased machinery for the three months ended March 31, 2007 and 2006 are $22,784 and $21,979 respectively. The net amount of $54,422 and $53,363 are included in other income in the accompanying consolidated statement of income for the three months ended March 31, 2007 and 2006. The total net book value of the machinery at March 31, 2007 and December 31, 2006 were $503,214 and $522,080.

7.   OTHER RECEIVABLES

Other receivables consist of the following as of:

		March 31,		December 31,
		2007		2006
		(Unaudited)		(Audited)
Amounts due from directors	$	8,186	$	-
Amounts due from employees		923,768		427,680
Sundry receivables		14,938,984		9,964,429
	$	15,870,938	$	10,392,109

All the amounts due from directors/employees are unsecured, interest free, and have no fixed repayment terms.

8.    OTHER PAYABLES

Other payables consist of the following as of:

		March 31,		December 31,
		2007		2006
		(Unaudited)		(Audited)
Amounts due to employees	$	376,568	$	215,376
Amounts due to directors		322,973		384,612
Deposit received		4,717,976		797,173
	$	5,417,517	$	1,397,161

All the amounts due to employees and directors are unsecured, interest free, and have no fixed repayment terms.

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9.  SHORT-TERM BANK LOANS

Short-term bank loans are as follows:

		As of
		March 31,		December 31,
		2007		2006
		(Unaudited)		(Audited)
Loans from Bank of China, interest rates at 6.417%-5.859%  and 6.48% per annum, respectively
Due February 28, 2007	$	-	$	333,320
Due March 3, 2007		-		371,780
Due March 5, 2007		-		320,500
Due March 20, 2007		-		256,400
Due June 21, 2007		-		538,440
Due June 21, 2007		542,573		-
Due September 6, 2007		1,136,819		-
Due September 13, 2007		258,368		-
	$	1,937,759	$	1,820,440
Loans from Rural Credit Union,
interest rate at 8.928% per annum
Due April 11, 2007		258,368		-
Due September 4, 2007		387,552		-
		645,920		-
Loans from Wujiang Country Commercial Bank,
Interest rate at 8.06% per annum
Due May 27, 2007	$	-	$	256,400
Due June 19, 2007		-		384,600
	$	-	$	641,000
Loan from China Ever Bright Bank, interest rate at
5.85% and 5.85% per annum, respectively
Due May 6, 2007	$	-	$		615,360
Due June 7, 2007		620,083			-
	$	620,083	$		615,360

813286.1 17   

Loan from China CITIC Bank, interest rate at 6.732%
And 6.003% per annum, respectively
Due January 13, 2007	$	-	$	641,000
Due January 24, 2008		645,920		-
	$	645,920	$	641,000
Loan from China Merchants Bank, interest rate at
6.138% and 6.435% per annum
Due June 2,2007	$	-	$	1,282,000
Due August 1, 2007		1,291,839		-
		1,291,839		1,282,000
	$	5,141,521	$	4,999,800

All of the short-term bank loans due in 2006 were paid on their due dates.  Interest expense was $375,238 in 2006 and $80,037 for the three months ended March 31, 2007, respectively. The principal amounts of the short-term bank loans are paid at the due dates and interest is paid quarterly.

10.  NOTES PAYABLE

Notes payable are as follows:

		As of
		March 31,		December 31,
		2007		2006
		(Unaudited)		(Audited)
Secured notes to Bank of China, bank commission
charge at 0.05% each transaction
Due March 1, 2007	$	-	$	128,200
	$	-	$	128,200
Secured notes to China Ever Bright Bank, bank
commission charge at 0.05% each transaction
Due March 10,2007	$	-	$	1,025,600
Due March 15, 2007		-		1,128,160
Due March 26, 2007		-		833,300
Due April 3, 2007		-		858,940
Due April 17, 2007		-		1,230,720
Due April 24, 2007		-		641,000
Due April 27, 2007		-		717,920

813286.1 18   

Due April 3, 2007		865,532		-
Due April 17, 2007		1,162,656		-
Due April 24, 2007		645,920		-
Due April 27, 2007		800,940		-
Due August 1, 2007		645,920		-
Due September 28, 2007		852,614		-
	$	4,973,582	$	6,435,640
Secured notes to China Merchants Bank, bank
commission charge at 0.05% each transaction
Due April 16, 2007	$	-	$	1,153,800
Due May 14, 2007		-		1,410,200
Due June 29, 2007		-		256,400
Due April 16, 2007		1,162,656		-
Due May 14, 2007		1,421,023		-
Due June 29, 2007		258,368		-
	$	2,842,047	$	2,820,400
Secured notes to Shengze Rural Commercial Bank,
bank commission charge at 0.05% each transaction
Due April 30, 2007	$	-	$	153,840
Due May 6, 2007		-		102,560
Due May 30, 2007		-		153,840
Due March 31, 2007		155,021		-
Due April 8, 2007		103,347		-
Due April 30, 2007		155,021		-
Due July 11, 2007		64,592		-
	$	477,981	$	410,240
Secured notes to China CITIC Bank, bank
commission charge at 0.05% each transaction
Due January 21, 2007	$	-	$	769,200
Due January 26, 2007		-		512,800
Due January 31, 2007				128,200
Due February 2, 2007		-		102,560
Due February 22, 2007		-		38,460
Due February 28, 2006		-		83,330
Due March 21, 2007		-		38,460
Due March 30, 2006		-		102,560
Due June 8, 2007		-		102,560
Due March 30, 2007		103,347		-

813286.1 19   

Due June 8, 2007		103,347		-
Due July 26, 2007		516,736		-
Due July 26, 2007		775,104		-
	$	1,498,534	$	1,878,130
Secured notes to  Minsheng Bank, bank
commission charge at 0.05% each transaction
Due April 30, 2007	$	-	$	1,282,000
Due April 30, 2007		1,291,839		-
Due July 11, 2007		1,291,839		-
		2,583,679		1,282,000
	$	12,375,822	$	12,954,610

All of the notes due on June 8, 2007 and in 2006 were paid on their due date. The bank charges 0.05% of the principal as a commission on each loan transaction. The bank commission charges were $10,141 in 2006 and $2,258 for the three months ended March 31, 2007, respectively, and are included in interest expense, net in the accompanying consolidated statements of income.

11. COMMON STOCK

The 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:-

Name	Shares Owned	Percentage of Polara Common Stock
Yao DeRong	15,000	30.00%
Itochu Textile Materials (Asia) Limited	12,200	24.40%
Yao YunZhen	4,000	8.00%
Yao YunHong	4,000	8.00%
Ren WeiRong	4,000	8.00%
Tang ShengLi	4,000	8.00%
Realty Century Management Ltd	1,000	2.00%
Good Result Investment Co. Ltd	1,000	2.00%
Ye GenZhen	1,000	2.00%
Gain For Success Enterprises Ltd	1,000	2.00%
Sheng MeiZhen	1,000	2.00%
Ma Binliang	900	1.80%
Ma Wenying	900	1.80%
Total	50,000	100%

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:

813286.1 20   

Name	Positions Held	Shares Owned	Percentage
John P. O'Shea		1,000,000	30.16%
Deborah A. Salerno	Director/President	1,000,000	30.16%
Frank L. Kramer	Director/Secretary/Treasurer	1,150,000	34.68%
Others		736,000	5.00%
Total		3,886,000	100%

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.

Name	Position Held in Management	Shared held Post-Recapitalization	Percentage
Yao DeRong	Chief Executive Officer/Chairman of the Board	22,150,200	28.50%
Itochu Textile Materials (Asia) Limited	Director/Shareholder	18,015,496	23.18%
Yao YunZhen	Management	5,906,720	7.6%
Yao YunHong	Management	5,906,720	7.6%
Ren WeiRong	Director/Secretary	5,906,720	7.6%
Tang ShengLi	Management	5,906,720	7.6%
John P. O'Shea		1,000,000	1.28%
Deborah A. Salerno		1,000,000	1.28%
Frank L. Kramer		1,150,000	1.48%
Other Park Hill shareholders Pre-recapitalzation		736,000	0.95%
Others		10,041,424	12.93%
Total		77,720,000	100.0%

In connection with the closing of the Share Exchange, we, the Park Hill Controlling Shareholders, Polara and Vincent Lin, Esq. as "Escrow Agent," entered into an escrow agreement dated July 31, 2006.  The parties agreed that Park Hill Controlling Shareholders place an aggregate of 2,379,184 of the Company’s shares (the "Escrow Shares") in escrow with an escrow agent.  While the shares are in escrow, the shareholders of Park Hill pre-recapitalization who delivered the Escrow Shares will have a right to vote the Escrow Shares and will also have a right to any and all dividends paid to the holders of our Common Stock.

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:-

813286.1 21   

Name	Position Held in Management	Shared held Post-Recapitalization	Percentage
Yao DeRong	Chief Executive Officer/Chairman of the Board	22,150,200	29.40%
Itochu Textile Materials (Asia) Limited	Director/Shareholder	18,015,496	23.91%
Yao YunZhen	Management	5,906,720	7.84%
Yao YunHong	Management	5,906,720	7.84%
Ren WeiRong	Director/Secretary	5,906,720	7.84%
Tang ShengLi	Management	5,906,720	7.84%
All Park Hill Shareholders Pre-recapitalization including John P. O'Shea,
Deborah A. Salerno and
Frank L. Kramer and
Other Park Hill Capital III Inc.'s shareholders Pre-recapitalzation		1,506,816	2.00%
Others		10,041,424	13.33%
Total		75,340,816	100.0%

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.

12.  INCOME TAXES

The 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 March 31, 2007 and 2006:

Three months ended March 31, 2006 (Unaudited)
		PRC		Hong Kong		Total
Income before tax	$	987,422	$	(527)	$	986,895
Tax at the domestic income tax rate	$	325,849	$	-	$	325,849
Effect of tax exemption granted		(207,359)		-		(207,359)
Income tax	$	118,491	$	-	$	118,491

Three months ended March 31, 2007 (Unaudited)
		PRC		Hong Kong		Total
Income before tax	$	680,560	$	(15)	$	680,544
Tax at the domestic income tax rate	$	224,585	$	-	$	224,585
Effect of tax exemption granted		(142,918)		-		(142,918)
Income tax	$	81,667	$	-	$	81,667

813286.1 22   

13. COMPARATIVE AMOUNTS

Certain 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.

813286.1 23   

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OPERATION AND FINANCIAL REVIEW

The Company has completed a recapitalization transaction 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 vehicle for the major operating subsidiary in China, Deyi Fabric Factory. The principal activities of the Group are manufacturing, dyeing and selling fashion clothes materials. The products are distributed in Asia, Europe, North America, Australia and Africa.

There is no change in the business of the Group in Year 2007.  There is 62% increase in the sales revenue of the Group for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. However, the gross margin has been reduced from 14% for the three months ended March 31, 2006 to 6% for the comparable period in 2007.  The Management considers the decrease in gross margin as part of the result of the new production line-cotton linen mixed fabric, being added at the beginning of Year 2007. 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, a relatively high wastage rate and hence higher production cost was resulted. The gross profit margin was -4% on the new product while the gross profit margin on old product was 11% for the three months ended March 31, 2007. The gross profit margin of old product has decreased slightly from 14% f or the three months ended March 31, 2006 to 11% for the same period in Year 2007 due to the fierce competition in the industry especially after the liberalization of textile quota restriction. Despite the loss on new product in the first quarter of 2007, the Company still sees a great potential for the cotton linen mixed fabric in China market. The Company expects to breakeven and generate gross profits of $180,000 from this new product in the second quarter of 2007 with a stable growth in profit in the future. The new product cotton linen mixed fabric will be a major product of the Company in coming years 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 its product.

The increase in its business segment of income derived from Asia about 5% more than that in Year 2007 is an expected trend of the above stated market situation.  The positive effect on slight increase in such geographical segment sales has made the Selling expense per Dollar sales being reduced from $0.0186 to $0.0109, representing a 42% saving in Selling and marketing cost that improves the cost-efficiency of the Group’s business marketing activities.

Administrative expenses has increased 10% from $126,497 for the three months ended March 31, 2006 to $138,995 for the three months ended March 31, 2007. The increase of $12,498 was primarily due to the increased testing cost, transportation cost and entertainment cost incurred for the new product-cotton linen mixed fabric, which was brought into production in the Year 2007.

The Group has achieved a Revenue of $12,188,168 for the three months ended March 31, 2007 compared to $7,503,135 for the three months ended March 31, 2006, that represents a 62% increase whereas the gross profits for the relevant periods are $783,605 vs. $1,055,560 respectively, representing a decrease of 26 %.  The Management is delighted that our strategy in focusing in Asia as an expanded production centre for garment in the world which provides the opportunity for achieving an economic-of-scale for upward revenue and profit growth in the most cost-efficient way is proven to be a success.

The Group has completed its restructuring and hence the reverse acquisition in Year 2006. The reverse acquisition exercise completed has provided a way for the Management to go to the United States Capital market which the Management is now contemplating for such financing exercise in the Year 2007.  

There has been many marketing effort that has been exerted by the Group for its Europe and United States customers for Year ended March 31, 2007.  The Company has been successfully negotiated for being on the designated supplier’s list of certain textile material for the manufacturers of ‘Adidas’ brand shirts which is a

813286.1 24   

benchmark for the quality of products our Group is offering in the market.  We are now in the preliminary stage of test-production and expect to grow with more purchase orders in this newly-developed market in Year 2007.

  In addition, the Group has been in discussion with the Textile Institute of Hong Kong Polytechnic University, one of the leading institution in Asia, for the application of its patented ‘Nano-technology’ in cloth dyeing that is water-resistant, which we targets for the application of such advanced technology in our textile product would provide a new market segment for our product distribution.  The Group plans to go into a more in-depth testing and implementation of such product as one of its new product line to be offered in market in Year 2007.

  The Management is of the view that while maintaining the current product mix with the current market mix that provides a stable source of 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 the risk of any intensive competition of current product lines of the Company that may cause downward trend to the profit margin to the Company in the future.

FINANCIAL RESOURCES AND LIQUIDITY

At the year ended March 31, 2007, the total asset of the Group has grown to $55,258,121 compared to $50,447,681 at the year ended December 31, 2006, representing an increase of about 10%, accompanying a 9% increase in debt ratio as well. The increase in total liabilities was primarily due to an increase in payables and customers’ deposits at the year ended March 31, 2007.

The Company has a net operating cash deficiency of $187,551 for the three months ended March 31, 2007 as compared to $5,258,242 used in operating activities in the same period in 2006. The increased sales for the three months ended March 31, 2007 contributed to the increase in receivables being granted to various customers. The increase in receivables for the three months ended March 31, 2007 was $7,270,550 while the increase in receivables for the three months ended March 31, 2006 was $11,331,151 which led to a decrease in net operating cash deficiency for the three months ended March 31, 2007 compared to the same period in 2006. The Management has consistently monitored the credit level granted to various customers periodically to minimize the risk of over-extension o of credit. The increase in accounts payable has risen from $732,020 for the three months ended March 31, 2006 to $1,891,592 for the comparable period in 2007. The above two factors both contributed to the decrease in net operating cash deficiency for the three months ended March 31, 2007 as compared to the same period in 2006.

As indicated above, such temporary shortfall in operating cash flow due to the expansion of business has been covered by the increase in net cash flow from investing activities of $1,535,592 of proceeds from notes receivables from Note issuers who are its customers also as at March 31, 2007 that result in a net cash inflow from investing activities of $1,317,991 as at March 31, 2007. The quality of notes receivables from customers are evaluated periodically that balance between the risk of bad debt against the increased purchase orders to be placed by these customers.  

The Group’ s business policy of market expansion with prudent evaluation is supported by our principal bankers whom have granted about $6 Millions of Notes payables that finance the operating of the Company.   All such notes payable are at an interest rate lower than the gross margin and even the net profit margin of 10%

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.

Pursuant to the terms as set forth in the Share Exchange Agreement for the transaction, if there is no financing of $5,000,000 within 120-days after the close of the Share exchange transaction, the Park Hill Controlling shareholders pre-recapitalization would have its aggregate shareholding from 5% post-recapitalization to 2%.  Finally, there is a 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.

813286.1 25   

The Management considers the said cancellation of capital stock of the Company has no effect on its financial resources and liquidity position.

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.

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.

813286.1 26   

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.

ITEM 6. EXHIBITS

Exhibit Number	Description of Documents
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.

813286.1 27   

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.

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: May 30, 2007	By:  /s/ Yao DeRong        YAO DERONG         Chief Executive Officer
Date: May 30, 2007	By: /s/Parker Seto        PARKER SETO         Chief Financial Officer
Date: May 30, 2007	By: /s/Huang Wei Cheng        HUANG WEI-CHENG         Chief Accounting Officer

813286.1 28