The following analysis of our consolidated financial condition and results of operations for the nine months ended September 30, 2008 and 2007, should be read in conjunction with the consolidated financial statements, including footnotes, and other information presented in our annual report on Form 10-KSB as filed with the Securities and Exchange Commission on March 31, 2008.

Overview

The Company was incorporated under the laws of the State of Delaware on August 1, 1996. The Company was formed in connection with the merger acquisition of Kushi Macrobiotics Corp. ("KMC") with American Phoenix Group, Inc. ("APGI") in 1996. Prior to such acquisition, KMC had operated a business of marketing a line of natural foods (the "Kushi Cuisine"). This business was not successful and management determined that it would be in the shareholder's interest for KMC to operate a different business. In August 2005, the Company, through Kushi Sub, Inc., a newly formed Delaware corporation and wholly-owned subsidiary of the Company ("Acquisition Sub") acquired all the ownership interest in Hanxin (Cork) International Holding Co., Ltd. ("Hanxin International"), a British Virgin Islands limited liability corporation, organized in September 2004. The Company acquired Hanxin International in exchange for 24,000,000 shares of common stock and 1,000 shares of the Series A Preferred Stock, which such shares converted into 29,530,937 shares of common stock. Subsequent to the merger and upon the conversion of the Series A Preferred Stock, the former shareholders of Hanxin International currently own 95% of the outstanding shares of the Company's common stock.

Kushi Sub, the surviving entity of the merger with Hanxin International, has no other business activities other than owning 100% of Xi'An Cork Investments Consultative Management Co., Ltd. ("Xi'An"), which owns 92% of Xian Hanxin Technology Co., Ltd. ("Hanxin"), incorporated in July 2002, both Xi'An and Hanxin are People's Republic of China (PRC) corporations. Most of the Company's operating and business activities are conducted through Hanxin.

On July 11, 2008, the Company's wholly owned subsidiary, Asia Cork Inc. was merged into its parent, the Company as approved by the Board of Directors of the Company pursuant to the Delaware General Corporation Law. The Company is the surviving company of the merger and Certificate of Incorporation is otherwise unchanged. The wholly-owned subsidiary was formed in July 2008 and had no material assets. The Certificate of Merger was filed with the Secretary of State of Delaware on July 11, 2008.

As permitted by Delaware General Corporation Law, the Company assumed the name of its wholly owned subsidiary following the merger and now operates under the name Asia Cork Inc. The Company's common stock is quoted on the Over the Counter Bulletin Board under the trading symbol "AKRK.OB."

Business Overview

The Company, through its subsidiaries, engages in developing, manufacturing and marketing of cork wood floor, wall and decorating materials.

Hanxin is a manufacturing company based in China, which produces cork-building material sold under the Hanxin brand name. Approximately 75% of Hanxin's products sold in year 2007 were to customers in China by our own sales persons, and domestic distributors and agents, with the remaining sales being made to customers in India, the United States, Germany and Japan through unrelated national distributors and agents. Our Chairman who is also a principal shareholder owns several cork processing technology related patents in China. As discussed in the Notes to the Financial Statements, Mr. Zhang leases three of these patents to Hanxin and has assigned three others to Hanxin as of September 30, 2008.

Foreign Exchange Considerations

Even though we are a U.S. company, because all of our operations are located in the PRC, we face certain risks associated with doing business in that country. These risks include risks associated with the ongoing transition from state business ownership to privatization, operating in a cash-based economy, dealing with inconsistent government policies, unexpected changes in regulatory requirements, export restrictions, tariffs and other trade barriers, challenges in staffing and managing operations in a communist country, differences in technology standards, employment laws and business practices, longer payment cycles and problems in collecting accounts receivable, changes in currency exchange rates and currency exchange controls. We are unable to control the vast majority of these risks associated both with our operations and the country in which they are located and these risks could result in significant declines in our revenues.

Because revenues from our operations in the PRC accounted for 100% of our consolidated net revenues, how we report net revenues from our PRC-based operations is of particular importance to understanding our financial statements. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," and are included in determining comprehensive net income or loss. For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income or loss.

The functional currency of our Chinese subsidiaries is the Chinese RMB, the local currency. The financial statements of the subsidiaries are translated to U.S. dollars using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not material during the periods presented. Until 1994, the RMB experienced a gradual but significant devaluation against most major currencies, including U.S. dollars, and there was a significant devaluation of the RMB on January 1, 1994 in connection with the replacement of the dual exchange rate system with a unified managed floating rate foreign exchange system. Since 1994, the value of the RMB relative to the U.S. Dollar has remained stable and has appreciated slightly against the U.S. dollar. Countries, including the United States, have argued that the RMB is artificially undervalued due to China's current monetary policies and have pressured China to allow the RMB to float freely in world markets.

On July 21, 2005, the PRC reported that it would have its currency pegged to a basket of currencies rather than just tied to a fixed exchange rate to the dollar. It also increased the value of its currency 2% higher against the dollar, effective immediately. If any devaluation of the RMB were to occur in the future, returns on our operations in China, which are expected to be in the form of RMB, will be negatively affected upon conversion to U.S. dollars. Although we attempt to have most future payments, mainly repayments of loans and capital contributions, denominated in U.S. dollars, if any increase in the value of the RMB were to occur in the future, our product sales in China and in other countries may be negatively affected.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in Note 1 in the consolidated financial statements. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

The Company records property and equipment at cost. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which are from 2 to 35 years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. We review the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. 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 property, if any, exceeds its fair market value.

The Company's revenues from the sale of products are recognized when the goods are shipped, title passes, the sales price to the customer is fixed and collectibility is reasonably assured. Persuasive evidence of an arrangement is demonstrated via purchase order from customer, product delivery is evidenced by warehouse shipping log as well as bill of lading from the trucking company and no product return is allowed except defective or damaged products, the sales price to the customer is fixed upon acceptance of purchase order, there is no separate sales rebate, discounts, and volume incentives.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2007

                                        For Three Months Ended September 30,
                                            2008                    2007               (Decrease)/ Increase
                                          Unaudited              Unaudited
Revenues                             $         8,958,570    $         4,134,630   $     4,823,940           117 %
Cost of Goods Sold                             5,810,298              2,996,475         2,813,823            94 %
Gross Profit                                   3,148,272              1,138,155         2,010,117           177 %
Gross Profit Percentage                            35.14 %                27.53 %
Operating Expenses
 Selling expenses                              1,152,517                447,886           704,631           157 %
General and administrative expense               191,235                 95,773            95,462           100 %
Total Operating Expenses                       1,343,752                543,659           800,093           147 %
Income From Operations                         1,804,520                594,496         1,210,024           204 %
Other Income (Expense)
 Interest (expense), net                         (43,924 )              (15,250 )         (28,674 )         188 %
 Other income (expense), net                      25,705                (13,843 )          39,548          -286 %
Total Other (Expense)                            (18,219 )              (29,093 )          10,874           -37 %
Income Before Taxes and Minority
Interest                                       1,786,301                565,403         1,220,898           216 %
Income Tax Provision                             270,017                 89,136           180,881           203 %
Income Before Minority Interest                1,516,284                476,267         1,040,017           218 %
Minority Interest                                120,111                 40,280            79,831           198 %
Net Income                           $         1,396,173    $           435,987   $       960,186           220 %

Revenues

For the three months ended September 30, 2008, our revenues were $8,958,570 as compared to $4,134,630 for the three months ended September 30, 2007, an increase of $4,823,940 or 117%. The reason for the increase is primarily due to our selling efforts which increased sales of our major finished goods (wood materials, boards and floors) as compared to the sales quantities for the three months ended September 30, 2007. We also increased our unit sales prices by 20% effective as of October 2007. Our revenues from wood materials and floor sales increased by amounts of $1,165,545 and $3,017,900 respectively in the three months ended September 30, 2008 as compared to the same period in year 2007, Even though our sales of the wood bar products decreased, this reduction was offset by an increase in the amount of boards sold during the three months ended September 30, 2008.

Cost of Sales and Gross Profit

For the three months ended September 30, 2008, cost of sales amounted to $5,810,298 or 64.86% of net revenues as compared to cost of sales of $2,996,475 or 72.47% of net revenues for the three months ended September 30, 2007. Gross profit for the three months ended September 30, 2008 was $3,148,272 or 35.14% of revenues, as compared to $1,138,155 or 27.53% of revenues for the three months ended September 30, 2007. The gross margin increased mainly as a result of increased sales in the high-unit profit margin in the sale of finished goods (wood materials, boards and floors) during the current year.

Operating Expenses

Our operating expenses increased for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007. For the three months ended September 30, 2008, total operating expenses were $1,343,752 as compared to $543,659 for the three months ended September 30, 2007, a increase of approximately $800,000 or 147%. This increase was attributable to an increase in selling expenses, freight costs and commissions associated with our increased revenues. The increase in general and administrative costs was primarily attributable to increases consulting fees, advisory fees, attorney fees, and other professional fees in the current quarter.

Other Income (expense)

For the three months ended September 30, 2008, total other expense, net amounted to ($18,219) as compared to total other expense net of ($29,093) for the three months ended September 30, 2007, a decrease of $10,874 or 37%. Other income for the three months ended September 30, 2008 and 2007 is related to the income received from the rental of our entertainment facility.

For the three months ended September 30, 2008, net interest expense was ($43,924) as compared to net interest expense of ($15,250) for the three months ended September 30, 2007, an increase of ($28,674) or 188%. The increase was primarily due to the Company acquired a convertible debt in second quarter of 2008, accordingly, more interest expense had been accrued in the current quarter as compared to same period of last year.

Income Tax

Our income taxes increased by $180,881 or 203% to $270,017 for the three months ended September 30, 2008 compared to $89,136 for the three months ended September 30, 2007. This increase was due to an increase in net income before income taxes. The Company's tax-exempt status ended as of December 31, 2004. Hanxin is subject to a 15% corporate income tax starting from year 2005. CIE is subject to a 25% corporate income tax starting from January 1, 2008.

NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2007

                                        For Nine Months Ended September 30,
                                            2008                   2007              (Decrease)/ Increase
                                          Unaudited              Unaudited
Revenues                             $        17,841,299    $        9,411,021   $     8,430,278           90 %
Cost of Goods Sold                            11,666,418             6,904,731         4,761,687           69 %
Gross Profit                                   6,174,881             2,506,290         3,668,591          146 %
Gross Profit Percentage                            34.61 %               26.63 %
Operating Expenses
 Selling expenses                              2,264,603             1,033,200         1,231,403          119 %
General and administrative expense               605,952               297,860           308,092          103 %
Total Operating Expenses                       2,870,555             1,331,060         1,539,495          116 %
Income From Operations                         3,304,326             1,175,230         2,129,096          181 %
Other Income (Expense)
Interest (expense) income, net                   (76,312 )               6,820           (83,132 )      -1219 %
Other income, net                                 30,671                22,625             8,046           36 %
Total Other (Expense) Income                     (45,641 )              29,445           (75,086 )       -255 %
Income Before Taxes and Minority
Interest                                       3,258,685             1,204,675         2,054,010          171 %
Income Tax Provision                             495,298               185,731           309,567          167 %
Income Before Minority Interest                2,763,387             1,018,944         1,744,443          171 %
Minority Interest                                215,357                84,543           130,814          155 %
Net Income                           $         2,548,030    $          934,401   $     1,613,629          173 %

Revenues

For the nine months ended September 30, 2008, our revenues were $17,841,299 as compared to $9,411,021 for the nine months ended September 30, 2007, an increase of $8,430,278 or 90%. As a result of increasing the commission rates in an effort to promote our personnel's selling efforts, sales of our major finished goods (wood materials, board and floors) increased during the nine months ended September 30, 2008 as compared to the sales quantities for the nine months ended September 30, 2007. In addition, we increased our unit sales prices by 20% effective as of October 2007. Our revenues from wood materials, board and floor sales increased by amounts of $1,900,634, $364,584, and $5,260,665, respectively in the nine months ended September 30, 2008 as compared to the same period in year 2007, Even though our sales on the wood bar products decreased, this reduction was offsets by an increase in the amount of boards sold during the nine months ended September 30, 2008.

Cost of Sales and Gross Profit

For the nine months ended September 30, 2008, cost of sales amounted to $11,666,418 or 65.39% of net revenues as compared to cost of sales of $6,904,731 or 73.37% of net revenues for the nine months ended September 30, 2007, an increase of $4,761,687 or 69%. Gross profit for the nine months ended September 30, 2008 was $6,174,881 or 34.61% of revenues, as compared to $2,506,290 or 26.63% of revenues for the nine months ended September 30, 2007, an increase of $3,668,591 or 146%. The gross margin increased mainly as a result of increased sales in the high-unit profit margin in the sale of finished goods (wood materials and floors) during the current year.

Operating Expenses

Our operating expenses increased for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. For the nine months ended September 30, 2008, total operating expenses were $2,870,555 as compared to $1,331,060 for the nine months ended September 30, 2007, an increase of $1,539,495 or 116%. This increase was attributable to a significant increase in selling expenses, freight cost, and commissions associated with our increased revenues. The increase in general and administrative costs was primarily attributable to increases in consulting fees, advisory fees, legal fees and professional fee in the current year.

Other Income (expenses)

For the nine months ended September 30, 2008, total other expense, net amounted to ($45,641) as compared to total other income net of $29,445 for the nine months ended September 30, 2007, a decrease of ($75,086) or 255%. Other income, net for the nine months ended September 30, 2008 and 2007 is related to the income received from the rental of our entertainment facility. This rental income was primarily offset by the donation made by the Company during the second quarter of 2008 in the amount of $72,592 in connection with the earthquake in SiChuan PRC.

For the nine months ended September 30, 2008, net interest expense was ($76,312) as compared to net interest income of $6,820 for the nine months ended September 30, 2007, a decrease of ($83,132) or 1219%. This decrease was primary attributable to the Company having issued a convertible debenture in second quarter of 2008, and having renewed a bank loan at a higher interest rate. As a result, the Company has accrued higher interest expense in 2008 compared to 2007.

Income Tax

Our income taxes increased by $309,567 to $495,298 for the nine months ended September 30, 2008 compared to $185,731 for the nine months ended September 30, 2007, an increase of 167%. This increase was due to a significant increase in net income before income taxes. The Company's tax-exempt status ended as of December 31, 2004. Hanxin is subject to a 15% corporate income tax starting from year 2005. CIE is subject to a 25% corporate income tax starting from January 1, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Operating working capital (accounts receivable plus inventory less accounts payable and accrued expenses) increased by approximately $4,680,000 from approximately $2,400,000 as of December 31, 2007 to approximately $7,076,000 as of September 30, 2008. The increase was primarily due to an increase in inventories and account receivable for amount of approximately $3,000,000 and $2,000,000 during the current year, respectively.

Cash used in operating activities was ($1,279,091) for the nine months ended September 30, 2008 as compared to $715,127 provided for the nine months ended September 30, 2007. The increase in cash used in by operating activities for the nine months ended September 30, 2008 was a result of an increase of accounts receivable, inventories, and advance to suppliers.

Cash provided in investing activities was $1,162,600 for the nine months ended September 30, 2008 as compared to ($641,607) used in the nine months ended September 30, 2007. The increase is primarily due to the Company and Shaanxi Shuta Wood Products Co., Ltd. had terminated the Land Transfer Agreement. The entire amount of approximately $1.4 million (equivalent to RMB 10 million) deposit that had been previously paid to Shaanxi Shuta pursuant to the Land Transfer Agreement had been refunded to the Company in August and September 2008.

The retractile funds were better utilized in expanding current operations, including purchasing additional raw materials to secure immediate future production needs.

With approximately $8.11 million of net working capital (total current assets less total current liabilities) and positive cash flow from operations as of September 30, 2008, we believe we will have sufficient resources to finance our operations for the coming year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Plan of Operations discusses the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, intangible assets, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of the Company's financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts and accruals for other liabilities. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007.