The following analysis of our unaudited condensed consolidated financial condition and results of operations for the three and nine months ended September 30, 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

We are a holding company based in Xi'an China whose primary business operations are conducted through our wholly-owned subsidiary Hanxin International, and its subsidiaries, Hanxin and Cork I&E. We are engaged in the development, manufacture and distribution of cork wood floor, wall, sheets, rolls and other cork decorating materials in China and other countries. Cork is a 'green' renewable resource harvested only from the bark of the cork oak tree, thus leaving forests generally undamaged. The Company's product lines include raw cork materials, semi-finished cork and finished cork products such as cork floorboards and cork wallboards.

Hanxin is the manufacturing subsidiary that produces cork-building material sold under the Hanxin brand name and on a private label basis. Approximately 70% of Hanxin's products sold in 2009 were to customers in foreign countries, among which 25% is sold by our sales team directly to the overseas markets under Hanxin's brand name, 30% through unrelated export distributors under their private label, and around 15% sold to other domestic cork product manufacturers who reprocess our products and sell the end products to overseas markets under their private label. The rest 30% are sold to customers in China by our own sales persons, and domestic distributors and agents Our Chairman who is also a principal shareholder owns several cork processing technology related patents in China. The Company has the right to use 17 patents, including three which Mr. Zhang has assigned to Hanxin. .

Our objective is to utilize the cost advantages of being based in China in order to become a leading cork flooring producer. In order to achieve our objectives, we intend to, among other things, increase our sales and marketing efforts, enhance production capacity, ensure our raw material incoming source, acquire other cork manufacturing factories and other cork exporting companies in China, export our cork products to oversea countries by our own sales network, and establish our own cork plantation in the world. Provided that our expansion plans above mentioned can succeed, we expect that our production capacity will increase substantially. There is no assurance that we will be able to achieve these objectives.

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 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 1 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 SEPTEMBER 30, 2009 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2008

                                          For Three Months
                                         Ended September 30,
                                        2009             2008
                                    (Unaudited)      (Unaudited)         Increase/(Decrease)

Revenues                            $ 10,151,002     $  8,958,570     $ 1,192,432         13.31 %
Cost of Goods Sold                     6,481,710        5,810,298         671,412         11.56 %
Gross Profit                           3,669,292        3,148,272         521,020         16.55 %
Gross Profit Percentage                    36.15 %          35.14 %
Operating Expenses
Selling expenses                       1,555,095        1,146,051         409,044         35.69 %
Bad debt expenses                        248,574            6,466         242,108       3744.32 %
General and administrative
expense                                  228,127          191,235          36,892         19.29 %
Total Operating Expenses               2,031,796        1,343,752         688,044         51.20 %
Income From Operations                 1,637,496        1,804,520        (167,024 )       -9.26 %
Other Income (Expenses)
Interest expenses, net                   (44,256 )        (43,924 )          (332 )        0.76 %
Other income , net                        26,260           25,705             555          2.16 %
Total Other Expenses                     (17,996 )        (18,219 )           223         -1.22 %
Income Before Taxes                    1,619,500        1,786,301        (166,801 )       -9.34 %
Income Tax Provision                     289,547          270,017          19,530          7.23 %
Income Before Noncontrolling
Interest                               1,329,953        1,516,284        (186,331 )      -12.29 %
Less: Net income attributable
to the noncontrolling interest           105,856          120,111         (14,255 )      -11.87 %
Net Income Attributable to Asia
Cork Inc.                           $  1,224,097     $  1,396,173     $  (172,076 )      -12.32 %

Revenues

Entering the third quarter of 2009, our business revived as the market for our products recovered from the low levels of the fourth quarter of 2008 and the first quarter of 2009. During the three months ended September 30, 2009, our revenues were $10,151,002 as compared to $8,958,570 for the three months ended September 30, 2008, an increase of $1,192,432 or 13.31%. The primary reason for the increase was the significant improvement in the market condition for home and commercial renovation in China and the success of our marketing efforts.

Cost of Sales and Gross Profit

During the three months ended September 30, 2009, cost of sales amounted to $6,481,710 or 63.85% of net revenues as compared to cost of sales of $5,810,298 or 64.86% of net revenues for the three months ended September 30, 2008. Gross profit during the three months ended September 30, 2009 was $3,669,292 or 36.15% of revenues, as compared to $3,148,272 or 35.14% of revenues for the three months ended September 30, 2008. The gross margin increased mainly as a result of slightly reduced manufacture costs in the third quarter of 2009, compared to the same quarter of 2008.

Operating Expenses

During the three months ended September 30, 2009, total operating expenses increased to $2,031,796 by 51.2%, or $688,044, compared to $1,343,752 for the three months ended September 30, 2008. This increase was attributable to an increase in selling expenses, freight costs and commissions associated with our increased revenue, and bad debt allowance. Likewise, our general and administrative costs during the three months ended September 30, 2009, was increased by 19.29% to $228,127, as compared to $191,235 during the same period of 2008. The increase s was primarily attributable to increased research and development efforts and fees in order to acquire advanced technology of cork manufacture, professional advisory fees, and legal fees in the third quarter of 2009.

Other Income (expense)

During the three months ended September 30, 2009, we realized ($17,996) of net other expense, as compared to the net other expense of ($18,219) during the same period of 2008, a decrease of $223 or 1.22%.

During the three months ended September 30, 2009, net other income was $26,260 as compared to net other income $25,705 for the three months ended September 30, 2008, The increase of $555 or 2.16% in net other income was due to the rental income we realized from the rental of our entertainment facility. This rental income was offset by the franchise taxes accrued for the State of Delaware.

During the three months ended September 30, 2009, net interest expense was ($44,256) as compared to net interest expenses of ($43,924) for three months ended September 30, 2008, an increase of $332, or 0.76%. This increase was primarily attributable to the increased interest rate of 24% applied to promissory notes for the third quarter of 2009 since the Company was unable to pay the promissory notes when due on their original maturity dates in June 2009. This increased interest expenses had been offset by reduced interest expenses from other notes

payable in the third quarter of 2009 as compared to the same quarter of 2008. As a result, the net interest expenses in the third quarter of 2009 slightly increased as compared to net interest expenses in the third quarter 2008.

Income Tax

The income taxes increased by $19,530 or 7.23% to $289,547 during the three months ended September 30, 2009 compared to $270,017 for the three months ended September 30, 2008.. This increase was primarily due to deferred taxes valuation allowance occurred in the third quarter of 2009. The Company's tax-exempt status ended as of December 31, 2004. Hanxin has been subject to a 15% corporate income tax starting from 2005. CIE is subject to 33% and 25% corporate income tax before and after January 1, 2008, respectively.

Net Income

As a result of improved revenues and increased operating expenses due to the increased marketing efforts in a revived economy, we realized $1,224,097 in net income in the third quarter of 2009, a decrease of $172,076 or 12.32% from $1,396,173 during the same period of 2008. Should the market for our products continue to be recovered, we expect that our revenues will continue to grow while operating expenses remain stable and that as a result our operating results may continue to improve in the coming months.

NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2008

                                            For Nine Months
                                          Ended September 30,
                                         2009             2008
                                     (Unaudited)      (Unaudited)        (Decrease)/ Increase

Revenues                             $ 17,056,777     $ 17,841,299     $  (784,522 )       -4.40 %
Cost of Goods Sold                     11,032,415       11,666,418        (634,003 )       -5.43 %
Gross Profit                            6,024,362        6,174,881        (150,519 )       -2.44 %
Gross Profit Percentage                     35.32 %          34.61 %
Operating Expenses
Selling expenses                        2,470,208        2,255,551         214,657          9.52 %
Bad debt expenses                         253,104            9,052         244,052       2696.11 %
General and administrative expense        480,882          605,952        (125,070 )      -20.64 %
Total Operating Expenses                3,204,194        2,870,555         333,639         11.62 %
Income From Operations                  2,820,168        3,304,326        (484,158 )      -14.65 %
Other Income (Expenses)
Interest expenses, net                   (101,300 )        (76,312 )       (24,988 )       32.74 %
Other income, net                          78,760           30,671          48,089        156.79 %
Total Other Expenses                      (22,540 )        (45,641 )        23,101        -50.61 %
Income Before Taxes                     2,797,628        3,258,685        (461,057 )      -14.15 %
Income Tax Provision                      477,029          495,298         (18,269 )       -3.69 %
Income Before Noncontrolling
Interest                                2,320,599        2,763,387        (442,788 )      -16.02 %
Less: Net income attributable to
the noncontrolling interest               181,757          215,357         (33,600 )      -15.60 %
Net Income Attributable to Asia
Cork Inc.                            $  2,138,842     $  2,548,030     $  (409,188 )      -16.06 %

Revenues

Our business continued to improve during the nine months ended September 30, 2009, as the market for our products improved in China, although revenue declined to $17,056,777 during the nine months ended September 30, 2009, compared to $17,841,299 during the nine months ended September 30, 2008, The decreased revenue during the nine months ended September 30, 2009 was mainly due to the adverse market condition for home and commercial renovation during the fourth quarter of 2008 and the first quarter of 2009, compared to the prior periods. However, our business has improved as the market recovered during the second and third quarter of 2009.

Cost of Sales and Gross Profit

During the nine months ended September 30, 2009, cost of sales amounted to $11,032,415 or 64.68% of net revenues as compared to cost of sales of $11,666,418 or 65.39% of net revenues during the nine months ended September 30, 2008. Gross profit during the nine months ended September 30, 2009 was $6,024,362 or 35.32% of revenues, as compared to $6,174,881 or 34.61% of revenues during the nine months ended September 30, 2008. The gross margin during the nine months ended September 30, 2009 is almost same as the same period of 2008. The gross margin increased slightly as a result of slightly reduced manufacture costs in the current year of 2009, compared to the same period of 2008.

Operating Expenses

During the nine months ended September 30, 2009, total operating expenses were $3,204,194 as compared to $2,870,555 during the nine months ended September 30, 2008, an increase of $333,639 or 11.62%. This increase was attributable to an increase in selling expenses, freight costs and commissions associated with our increased revenue, and bad debt allowance. Our accounts receivable outstanding more than six months declined from $1,741,487 of the $4,979,792 total accounts receivable at December 31, 2008 to nearly none of the total of $5,599,865 in accounts receivable at September 30, 2009. In addition, commencing from July 2009, we adopted a bad debt allowance at 5% of the outstanding account receivable at. September 30, 2009 which increased the bad debt expenses to $253,104, compared to $9,052 during the nine months ended September 30, 2009. Meanwhile, our general and administrative costs were reduced to $480,882, a decrease of $125,070 or 20.64%, compared to $605,952 during the nine months ended September 30, 2008 to offset part of the increase in selling expenses and bad debt allowance. The decrease in general and administrative costs was primarily attributable to decreased consulting fees, advisory fees and professional fees during the nine months ended September 30. 2009 as compared to the nine months ended September 30, 2008.

Other Income (expense)

During the nine months ended September 30, 2009, other expense, net, amounted to $22,540 as compared to other expense, net of $45,641 during the nine months ended September 30, 2008, a decrease of $23,101 or 50.61%.

Other expense, net during the nine months ended September 30, 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 tax accrued for the State of Delaware and the donation contribution

made by the Company during the three months ended September 30, 2008 in the amount of $71,822 and which such donation was made in connection with the earthquake in Sichuan PRC.

For the nine months ended September 30, 2009, net interest expense was $101,300 as compared to net interest expenses of $76,312 during nine months ended September 30, 2008, an increase of $24,988, or 32.74%. This increase was primarily attributable to the Company acquiring convertible promissory note in June 2008, and its interest rate had been increased to 24% from 18% after default the original mature date on June 4, 2009. Accordingly, more interest expenses had been accrued during the nine months of 2009 as compared to same period of 2008.

Income Tax

The income taxes decreased by $18,269 to $477,029 during the nine months ended September 30, 2009 compared to $495,298 during the nine months ended September 30, 2008, a decrease of 3.69%. This decrease was primarily due to an increased operating expense during the nine months of 2009 as compared to the same period of 2008. . 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 33% and 25% corporate income tax before and after January 1, 2008, respectively.

Net Income

Our net income during the nine months ended September 30, 2009 was $2,138,842 compared to $2,548,030. Such a decrease was due to our dropped revenues and increase operating expense during the nine months ended September 30, 2009, compared to the same period of 2008.

LIQUIDITY AND CAPITAL RESOURCES

Operating working capital was $9,092,862 on September 30, 2009, an increase of $369,588 or 4.24% compared to $8,723,274 at December 31, 2008. The increase was primarily due to an increase of $520,153 in cash and equivalents and an increase of $4,552,102 in inventories, respectively, as of September 30, 2009. However, these increases were significantly offset by the decrease in the current assets related to a loan to unrelated party, and the increase in current liabilities for tax payable and account payable and accrued expenses on September 30, 2009.

Cash provided by operating activities was $1,450,075 during the nine months ended September 30, 2009 as compared to ($1,279,091) used in during the nine months ended September 30, 2008. This increase was primarily because we advance less money to our suppliers during the nine months ended September 30, 2009 as compared to the same period of last year.

Cash used in investing activities was $708,962 during the nine months ended September 30, 2009, compared to net cash provided by investing activities of $1,162,600 in the same period 2008. The financing cash inflow increase during the first nine months of 2008 was primarily because a deposit for the purchase of intangible assets was refunded in September 2008.

Cash used in financing activities was $224,132 during the nine months ended September 30, 2009, compared with net cash provided by financing activities of $567,450 in the same period 2008. The greater financing cash inflow during the first nine months of 2008 was primarily because we issued convertible notes in the principal amount of $700,000 in June 2008.

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 bore interest at an annual rate of 18%, payable at maturity in USD. Since the notes . . .