The following analysis of our consolidated financial condition and results of operations for the three months ended March 31, 2009 and 2008, should be read in conjunction with the consolidated financial statements, including footnotes, and other information presented in our annual report on Form 10-K as filed with the Securities and Exchange Commission on April 16, 2009.

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 June 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 to 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 record 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 collectability 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 MARCH 31, 2009 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008

                                         For Three Months Ended March 31,
                                          2009                     2008
                                      (Unaudited)               (Unaudited)           (Decrease)/ Increase
Revenues                             $      902,504          $       2,516,345     $ (1,613,841 )      -64.13 %
Cost of Goods Sold                          689,587                  1,683,099         (993,512 )      -59.03 %
Gross Profit                                212,917                    833,246         (620,329 )      -74.45 %
Gross Profit Percentage                       23.59 %                    33.11 %
Operating Expenses
Selling expenses                            125,165                    279,294         (154,129 )      -55.19 %
General and administrative expense          104,442                     73,469           30,973         42.16 %
Total Operating Expenses                    229,607                    352,763         (123,156 )      -34.91 %
(Loss) Income From Operations               (16,690 )                  480,483         (497,173 )     -103.47 %
Other Income (Expense)
Interest (expense) income, net              (12,621 )                  (12,553 )            (68 )        0.54 %
Other income, net                            24,725                     34,143           (9,418 )      -27.58 %
Total Other Income                           12,104                     21,590           (9,486 )      -43.94 %
(Loss) Income Before Taxes                   (4,586 )                  502,073         (506,659 )     -100.91 %
Income Tax Provision                          4,280                     76,791          (72,511 )      -94.43 %
(Loss) Income Before
Noncontrolling Interest                      (8,866 )                  425,282         (434,148 )     -102.08 %
Less: Net (loss) income
attributable to the noncontrolling
interest                                     (3,035 )                   35,100          (38,135 )     -108.65 %
Net (Loss) Income Attributable to
Asia Cork Inc.                       $       (5,831 )        $         390,182     $   (396,013 )     -101.49 %

Revenues

For the three months ended March 31, 2009, our revenues were $902,504 as compared to $2,516,345 for the three months ended March 31, 2008, a decrease of $1,613,841 or 64.13%. The reason for the decrease is primarily due to adverse market condition for home and commercial renovation has recently significantly adversely affected revenues. While we have successfully grown our revenues over recent years, we cannot predict when the industry will recover.

Cost of Sales and Gross Profit

For the three months ended March 31, 2009, cost of sales amounted to $689,587 or 76.41% of net revenues as compared to cost of sales of $1,683,099 or 66.89% of net revenues for the three months ended March 31, 2008. Gross profit for the three months ended March 31, 2009 was $212,917 or 23.59% of revenues, as compared to $833,246 or 33.11% of revenues for the three months ended March 31, 2008. The gross margin decreased mainly as a result of decreased sales in certain finished goods (wood materials and floors), which had the high-unit profit margin, and slightly reduced unit sales price in the first quarter 2009 that were made to attract sales.

Operating Expenses

For the three months ended March 31, 2009, total operating expenses were $229,607 as compared to $352,763 for the three months ended March 31, 2008, an decrease of $123,156 or 34.91%. This decrease was attributable to a decrease in selling expenses, freight costs, and commissions associated with our decreased revenue. Even though

this decrease had been offset with the increase in general and administrative costs, we still incurred less operating expenses in the first quarter 2009 as compared to the first quarter of 2008. The increase in general and administrative expenses was mainly attributable to professional fees that increased in the first quarter 2009 as compared to the first quarter of 2008.

Other Income (expense)

For the three months ended March 31, 2009, other income, net, amounted to $12,104 as compared to other income net of $21,590 for the three months ended March 31, 2008, a decrease of $9,486 or 43.94%. Other income for the three months ended March 31, 2009 and 2008 is related to the income received from the rental of our entertainment facility. This rental income was primarily offset by the franchise taxes accrued for the State of Delaware.

For the three months ended March 31, 2009, net interest expense was $12,621 as compared to net interest expenses of $12,553 for three months ended March 31, 2008, a slightly increase of $68, or 0.54%. This increase was primarily attributable to the Company acquiring convertible debt in second quarter of 2008, accordingly, more interest expenses had been accrued in the current quarter as compared to same period of last year. However, there was less bank loan in China during the first quarter 2009 as compared to the first quarter 2008, that incurred less interest expenses for the bank loan in the first quarter 2009. As a result, the net interest expenses in the first quarter 2009 had slightly increased as compared to net interest expenses in the first quarter 2008.

Income Tax

Net income taxes expense decreased by $72,511 to $4,280 for the three months ended March 31, 2009 as compared to $76,791 for the three months ended March 31, 2008. This decline was primarily due to a decrease in net income before income taxes in the first quarter of 2009 as compared to the first quarter of 2008.

LIQUIDITY AND CAPITAL RESOURCES

Operating working capital (accounts receivable plus inventory less accounts payable and accrued expenses) decreased by approximately $391,099 from approximately $6,308,169 as of December 31, 2008 to approximately $5,917,070 as of March 31, 2009. The decrease was primarily due to a decrease in inventories and account receivable for amount of approximately $123,769 and $310,085 during the current year, respectively.

Cash used in operating activities was ($4,722) for the three months ended March 31, 2009 as compared to $146,374 provided for the three months ended March 31, 2008. The increase in cash used in operating activities for the three months ended March 31, 2009 was mainly due to a decrease of net income and an increased advance payment to suppliers.

On June 4 and June 12, 2008, the Company consummated an offering of convertible promissory notes and common stock purchase warrants for aggregate gross proceeds of $700,000. The notes mature one (1) year from the date of issuance and bear interest at an annual rate of 18%, payable at maturity in USD. Upon the successful closing of an equity or convertible debt financing for a minimum of $2,000,000 ("Financing"), the promissory notes will be convertible into shares of common stock at a 50% discount to the price per share of Common Stock sold in the Financing. It is unlike that a Financing will be achieved within the one year term of the promissory notes. Therefore, each investor has the option to be paid the principal and interest due under the promissory note or convert the note into shares of common stock at a conversion price of $0.228 per share. The promissory notes are secured by Common Stock pledged by Pengcheng Chen, our Chief Executive Officer and Fangshe Zhang, our Chairman. However, at the present time we do not have sufficient cash or cash equivalents to repay the promissory should the investors demand payment upon maturity. The Company is seeking alternate financing, but there is no assurance it will be obtained.

We had approximately $ 8.78 million of net working capital (total current assets less total current liabilities) at March 31, 2009 compared to working capital of approximately $8.73 million at March 31, 2008. However, we had negative cash flow from operations for the three months ended March 31, 2009 of ($4,722) compared to positive cash flow from operations of $146,374 for the three months ended March 31 2008. We also had negative cash flow in operating activities for the year ended December 31, 2008 Moreover, our business has been adversely affected by a decline in revenues and difficulty in collecting outstanding accounts receivable. During the first quarter of 2009, our accounts receivable outstanding for over half year increased to approximately $2,521,196 (equivalent to RMB17,228,923) and the cash and equivalents had declined significantly to $18,979 as of March 31, 2009. These events raise substantial doubt about our ability to continue as a going concern unless we can collect the outstanding accounts receivable, market conditions improve, we can borrow the money either from shareholders or outside credit

union, banks, or investors, and/or raise capital in the near term to (1) satisfy our current obligations, and (2) develop and market our more profitable products.

The Company presently has ongoing discussions and negotiations with a number of additional financing alternatives. However, the Company has no definitive agreements to provide funding at this time.

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-K for the fiscal year ended December 31, 2008.

INFLATION

During the period under review, inflation did not have a material impact on our financial performance.

Web Site Access to Our Periodic SEC Reports

You may read and copy any public reports we filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E. Room 1580, Washington D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1800-SEC-0330. The SEC also maintains an Internet site http://www.sec.gov that contains reports and information statements, and other information we filed electronically

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