United
States


Securities
and Exchange Commission


Washington,
D.C. 20549











FORM
10-Q /A










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





For the
quarterly period ended September 30, 2008





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





For the
transition period from:





Commission file number000-30115








ASIA
      CORK INC.(Exact name of
      Small Business Issuer as specified in its charter.)




DELAWARE
              
              13-3912047(State of other
      jurisdiction of incorporation or organization)
              
              (IRS Employer Identification
  No.)
  3rd Floor, A Tower of Chuang Xin
                Information Building(Address of
      principal executive offices, including zip code)




(011)
      86-13301996766(Issuer’s
      telephone number, including area code)(Former
      Address, if changed since last report)







Check
whether the Issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. YES
þ  NO
o





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: On November 13, 2008 there were 35,663,850
shares of Common Stock, par value $.0001 per share, outstanding.





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of 1934) (check one): Yeso   No
þ













This
amendment is being filed to revise the disclosure regarding the effect of the
issuance of common stock purchase warrants as part of a financing by the Company
in June 2008.





ASIA CORK
INC.


FORM 10-Q /A QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2008







INDEX







PagePART
      I – FINANCIAL INFORMATIONItem 1: – Financial
      Statements
            1Item 2: –
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations
            15Item
      3: – Quantitative and Qualitative Disclosures about Market
      Risk
            23Item 4:– Controls
      and Procedures
            23PART II – OTHER
      INFORMATIONItem 1: – Legal
      Proceedings
            24Item 1A: – Risk
      Factors
            24Item 2: –
      Unregistered Sales of Equity Securities and Use of
      Proceeds
            24Item
      3: – Default upon Senior Securities
            24Item 4: – Submission
      of Matters to a Vote of Security
      Holders
            24Item 5: – Other
      Information
            24Item 6: –
      Exhibits
            24










Part
I


Financial
Information




ITEM 1
              FINANCIAL
      STATEMENTS
 ASIA
CORK INC. AND SUBSIDIARIES
 (FORMERLY
HANKERSEN INTERNATIONAL CORP. AND SUBSIDIARIES)
 CONSOLIDATED
BALANCE SHEETS
 
  September 30,
      2008
                  
                  
                  December 31,
      2007Unaudited
                  
                  
                  AuditedAssetsCurrent AssetsCash
      and equivalents
                  
                  $
                  557,075
                  
                  
                  $
                  367,396Accounts receivable, net of
      allowance for doubtful accounts of $22,429and
      $12,210, respectively
                  
                  
                  4,463,314
                  
                  
                  
                  2,429,772Inventories
                  
                  
                  4,211,806
                  
                  
                  
                  920,140Advance
      to suppliers
                  
                  
                  2,664,200
                  
                  
                  
                  2,375,174Prepayments and other current
      assets
                  
                  
                  127,396
                  
                  
                  
                  16,111Total
      Current Assets
                  
                  
                  12,023,791
                  
                  
                  
                  6,108,593
 Property and
      Equipment - Net
                    
                    
                    5,087,362
                    
                    
                    
                    1,754,830Deposit for Purchase
      of Fixed Assets
                    
                    
                    2,032,431
                    
                    
                    
                    1,891,810Deposit for Purchase
      of Intangible Assets
                    
                    
                    -
                    
                    
                    
                    1,370,877Deposit for
      Acquisition
                    
                    
                    1,472,776
                    
                    
                    
                    1,370,877Construction in
      Progress
                    
                    
                    -
                    
                    
                    
                    2,821,817Investment - At
      Cost
                    
                    
                    2,061,886
                    
                    
                    
                    1,919,228Intangible
      Assets- Net
                    
                    
                    173,362
                    
                    
                    
                    161,073Total
      Assets
                    
                    
                    22,851,608
                    
                    
                    
                    17,399,105
 Liabilities and
      Stockholders' EquityCurrent
      LiabilitiesAccounts payable and accrued
      expenses
                
                
                1,599,097
                
                
                
                956,519Loan
      payable
                
                
                441,833
                
                
                
                534,642Convertible note, net
                
                
                504,430
                
                
                
                -Customer deposit
                
                
                196,617
                
                
                
                -Taxes
      payable
                
                
                668,020
                
                
                
                767,764Due to
      stockholders/officers
                
                
                266,919
                
                
                
                166,199Other
      current liabilities
                
                
                20,826
                
                
                
                15,039Total
      Current Liabilities
                
                
                3,697,742
                
                
                
                2,440,163Total
      Liabilities
                
                
                3,697,742
                
                
                
                2,440,163Minority
      Interest
                
                
                1,737,240
                
                
                
                1,522,318Stockholders'
      EquityCommon
      stock, $0.0001 par value, 200,000,000 shares authorized, 35,663,850
      and 35,413,850 issued and outstanding,
respectively
                
                
                3,566
                
                
                
                3,541Additional paid-in
      capital
                
                
                4,485,446
                
                
                
                4,396,772Additional paid-in capital-stock
      warrant
                
                
                279,386
                
                
                
                -Reserve
      funds
                
                
                2,175,440
                
                
                
                1,741,715Retained earnings
                
                
                7,700,139
                
                
                
                5,729,630Accumulated other comprehensives
      income
                
                
                2,772,649
                
                
                
                1,564,966Total
      Stockholders' Equity
                
                
                17,416,626
                
                
                
                13,436,624Total
      Liabilities and Stockholders' Equity
                
                $
                22,851,608
                
                
                $
                17,399,105
 See notes
to consolidated financial statements.
 1
 ASIA
CORK INC. AND SUBSIDIARIES (FORMERLY
HANKERSEN INTERNATIONAL CORP. AND SUBSIDIARIES)
 CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
 For Three Months Ended September
      30,
                      
                      
                      For Nine Months Ended September
      30,2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007Unaudited
                      
                      
                      Unaudited
                      
                      
                      Unaudited
                      
                      
                      UnauditedRevenues
                      
                      $
                      8,958,570
                      
                      
                      $
                      4,134,630
                      
                      
                      $
                      17,841,299
                      
                      
                      $
                      9,411,021Cost of Goods Sold
                      
                      
                      5,810,298
                      
                      
                      
                      2,996,475
                      
                      
                      
                      11,666,418
                      
                      
                      
                      6,904,731Gross Profit
                      
                      
                      3,148,272
                      
                      
                      
                      1,138,155
                      
                      
                      
                      6,174,881
                      
                      
                      
                      2,506,290Operating ExpensesSelling expenses
                      
                      
                      1,152,517
                      
                      
                      
                      447,886
                      
                      
                      
                      2,264,603
                      
                      
                      
                      1,033,200General and administrative expense
                      
                      
                      244,575
                      
                      
                      
                      95,773
                      
                      
                      
                      660,932
                      
                      
                      
                      297,860Total Operating Expenses
                      
                      
                      1,397,092
                      
                      
                      
                      543,659
                      
                      
                      
                      2,925,535
                      
                      
                      
                      1,331,060Income From Operations
                      
                      
                      1,751,180
                      
                      
                      
                      594,496
                      
                      
                      
                      3,249,346
                      
                      
                      
                      1,175,230Other Income (Expense)Interest (expense) income, net
                      
                      
                      (113,771
                      )
                      
                      
                      (15,250
                      )
                      
                      
                      (160,128
                      )
                      
                      
                      6,820Other income (expense), net
                      
                      
                      25,705
                      
                      
                      
                      (13,843
                      )
                      
                      
                      30,671
                      
                      
                      
                      22,625Total Other (Expense) Income
                      
                      
                      (88,066
                      )
                      
                      
                      (29,093
                      )
                      
                      
                      (129,457
                      )
                      
                      
                      29,445Income Before Taxes and Minority Interest
                      
                      
                      1,663,114
                      
                      
                      
                      565,403
                      
                      
                      
                      3,119,889
                      
                      
                      
                      1,204,675Income Tax Provision
                      
                      
                      272,822
                      
                      
                      
                      89,136
                      
                      
                      
                      500,733
                      
                      
                      
                      185,731Income Before Minority Interest
                      
                      
                      1,390,292
                      
                      
                      
                      476,267.00
                      
                      
                      
                      2,619,156
                      
                      
                      
                      1,018,944Minority Interest
                      
                      
                      119,887
                      
                      
                      
                      40,280
                      
                      
                      
                      214,922
                      
                      
                      
                      84,543Net Income
                      
                      $
                      1,270,405
                      
                      
                      $
                      435,987
                      
                      
                      $
                      2,404,234
                      
                      
                      $
                      934,401Other Comprehensive Income:Foreign Currency Translation Gain
                      
                      
                      212,089
                      
                      
                      
                      188,975
                      
                      
                      
                      1,207,683
                      
                      
                      
                      394,093Comprehensive Income
                      
                      $
                      1,482,494
                      
                      
                      $
                      624,962
                      
                      
                      $
                      3,611,917
                      
                      
                      $
                      1,328,494Net Income Per Common Share- Basic
                      
                      $
                      0.04
                      
                      
                      $
                      0.01
                      
                      
                      $
                      0.07
                      
                      
                      $
                      0.03- Diluted:
                      
                      $
                      0.04
                      
                      
                      $
                      0.01
                      
                      
                      $
                      0.07
                      
                      
                      $
                      0.03Weighted Common Shares Outstanding*- Basic
                      
                      
                      35,564,961
                      
                      
                      
                      35,413,850
                      
                      
                      
                      35,464,220
                      
                      
                      
                      35,413,850- Diluted:
                      
                      
                      38,795,991
                      
                      
                      
                      35,413,850
                      
                      
                      
                      36,985,851
                      
                      
                      
                      35,413,850
 2
  ASIA
CORK INC. AND SUBSIDIARIES
 (FORMERLY
HANKERSEN INTERNATIONAL CORP. AND SUBSIDIARIES)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
  For
      the Nine Months Ended September 30,2008
                  
                  
                  2007Unaudited
                  
                  
                  UnauditedCash
      Flows From Operating ActivitiesNet
      Income
                  
                  $
                  2,404,234
                  
                  
                  $
                  934,401Adjustments
      to Reconcile Net Income to Net Cash(Used
      in) Provided by Operating ActivitiesDepreciation
      and amortization
                  
                  
                  197,831
                  
                  
                  
                  188,869Bad
      debt adjustment
                  
                  
                  9,052
                  
                  
                  
                  288Issued
      common stock for legal fees
                  
                  
                  43,500
                  
                  
                  
                  -Minority
      interest
                  
                  
                  214,922
                  
                  
                  
                  84,543Consulting
      fees adjusted from deferred
                  
                  
                  11,480
                  
                  
                  
                  -Interest
      expenses for discount on convertible note
                  
                  
                  83,816Accrued
      due to shareholder expenses
                  
                  
                  82,252
                  
                  
                  
                  -Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (1,733,401
                  )
                  
                  
                  (56,638
                  )Inventories
                  
                  
                  (3,000,259
                  )
                  
                  
                  (1,102,622
                  )Advance
      to suppliers
                  
                  
                  (104,695
                  )
                  
                  
                  318,349Prepayments
      and other current assets
                  
                  
                  (72,951
                  )
                  
                  
                  10,639Accounts
      payable and accrued expenses
                  
                  
                  531,939
                  
                  
                  
                  189,932Customer
      deposits
                  
                  
                  196,617
                  
                  
                  
                  -Taxes
      payable
                  
                  
                  (145,963
                  )
                  
                  
                  133,577Other
      current liabilities
                  
                  
                  4,346
                  
                  
                  
                  13,789Net
      Cash (Used in) Provided by Operating Activities
                  
                  
                  (1,277,280
                  )
                  
                  
                  715,127Cash
      Flows From Investing ActivitiesProceeds
      from withdraw deposit for purchase of fixed assets
                  
                  
                  -
                  
                  
                  
                  25,628Proceeds
      from withdraw deposit for purchase of intangible assets
                  
                  
                  1,370,877
                  
                  
                  
                  -Payment
      for deposit for acquisition
                  
                  
                  -
                  
                  
                  
                  (1,334,615
                  )Payment
      for purchase of equipment
                  
                  
                  -
                  
                  
                  
                  (984
                  )Payment
      for construction in process
                  
                  
                  (208,277
                  )
                  
                  
                  (1,253,703
                  )Proceeds
      from repayment of advance to unrelated party
                  
                  
                  -
                  
                  
                  
                  1,922,067Net
      Cash Provided by (Used in) Investing Activities
                  
                  
                  1,162,600
                  
                  
                  
                  (641,607
                  )Cash
      Flows From Financing ActivitiesProceeds
      from long-term debt
                  
                  
                  441,833
                  
                  
                  
                  -Payments
      to long-term debt
                  
                  
                  (574,383
                  )
                  
                  
                  (384,413
                  )Proceeds
      from convertible note
                  
                  
                  700,000
                  
                  
                  
                  -Payments
      to stockholders/officers
                  
                  
                  -
                  
                  
                  
                  (8,061
                  )Proceeds
      from stockholders/officers
                  
                  
                  -
                  
                  
                  
                  443,508Net
      Cash Provided by Financing Activities
                  
                  
                  567,450
                  
                  
                  
                  51,034Net
      Increase in Cash and Equivalents
                  
                  
                  452,770
                  
                  
                  
                  124,554Effect
      of Exchange Rate Changes on Cash
                  
                  
                  (263,091
                  )
                  
                  
                  43,903Cash
      and Equivalents at Beginning of Period
                  
                  
                  367,396
                  
                  
                  
                  564,733Cash
      and Equivalents at End of Period
                  
                  $
                  557,075
                  
                  
                  $
                  733,190SUPPLEMENTAL
      SCHEDULE OF NON-CASH INVESTING AND FINANCING
      ACTIVITIESConstruction
      in process transferred out to property
                  
                  $
                  3,401,660
                  
                  
                  $
                  -Shareholder
      donated intangible assets into the Company without payment
                  
                  $
                  4,199
                  
                  
                  $
                  -Issued
      common stock for legal fees and part of consulting
    fees
                  
                  $
                  84,500
                  
                  
                  $
                  -  See notes
to consolidated financial statements.
 3
  ASIA
CORK INC. AND SUBSIDIARIES
 (FORMERLY
HANKERSEN INTERNATIONAL CORP. AND SUBSIDIARIES)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 
 1.
                    BASIS
      OF PRESENTATION
 
 a)
                    Interim
      financial statements:
 
 The
unaudited consolidated financial statements of Asia Cork Inc. and subsidiaries
(the "Company") have been prepared in accordance with U.S. generally
accepted accounting principles for interim financial information and pursuant to
the requirements for reporting on Form 10-Q. Accordingly, they do not include
all the information and footnotes required by accounting principles generally
accepted in the United States of America for annual financial statements.
However, the information included in these interim financial statements reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for the fair presentation of the
consolidated financial position and the consolidated results of operations.
Results shown for interim periods are not necessarily indicative of the results
to be obtained for a full year. The consolidated balance sheet information as of
December 31, 2007 was derived from the audited consolidated financial statements
included in the Company's Annual Report on Form 10-KSB. These interim financial
statements should be read in conjunction with that report.
 
 The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All material intercompany balances and transactions have been
eliminated.
 
 b)
                    Description
      of business and reverse merger:
  The
Company was incorporated on August 1, 1996, under the laws of the State of
Delaware. Until August 2005, the Company had no operations and the sole purpose
of the Company was to locate and consummate a merger or acquisition with a
private entity.
 
 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 shares of common stock and shares of the Series A Preferred Stock
of the Company.
 
 Subsequent
to the merger and upon the conversion of the Series A Preferred Stock, the
former shareholders of Hanxin International own 95% of the outstanding shares of
the Company's common stock. As a result of the ownership interests of the former
shareholders of Hanxin International, for financial statement reporting
purposes, the merger was treated as a reverse acquisition, with Hanxin
International deemed the accounting acquirer and Kushi deemed the accounting
acquiree. Historical information of the surviving company is that of Hanxin
International.
 
 4
 
 Kushi
Sub, Inc., the surviving entity in the merger with Hanxin International, has no
other business activities except for 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
activities are conducted through Hanxin.
 
 During
the year ended December 31, 2005, Hanxin acquired 75% equity interest of Cork
Import and Export Co. Ltd (“CIE”), a PRC corporation engaged in cork trading
businesses.
 
 On July
11, 2008, the Company's wholly owned subsidiary, Asia Cork Inc., was merged into
its parent, the Company, in order to change the name of the Company, after
approval 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,
except for the adoption of the new name, its Certificate of Incorporation is
otherwise unchanged. The wholly-owned subsidiary was formed in July 2008 and had
no material assets.
 
 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.”
 
 Hanxin is
engaged in developing, manufacturing and marketing of cork wood floor, wall and
decorating materials. Its products are sold to customers in China and oversea
customers in India, the United States of America, Germany and
Japan.
  c)
                    Use
      of estimates:
  The
preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements and
the reporting amounts of revenues and expenses during the reported period.
Significant estimates in 2008 and 2007 include the estimated useful lives and
fair values of the assets. Actual results could differ from those
estimates.
 
 d)
                    Basic
      and diluted net income per
share:
 
 The
Company accounts for net income per common share in accordance with SFAS 128,
“Earnings per Share” (“EPS”).  SFAS 128 requires the disclosure of the
potential dilution effect of exercising or converting securities or other
contracts involving the issuance of common stock. Basic net income per share is
determined based on the weighted average number of common shares outstanding for
the period.  Diluted net income per share is determined based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised into common stock.
 
 5
  e)
                    Stock-based
      compensation:
 
 The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services".  The fair value of the option issued is
used to measure the transaction, as this is more reliable than the fair value of
the services received.  Fair value is measured as the value of the
Company’s common stock on the date that the commitment for performance by the
counterparty has been reached or the counterparty’s performance is
complete.  The fair value of the equity instrument is charged
directly to compensation expense and additional paid-in
capital.
 
 f)
                    Revenue
      recognition:
 
 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 distributor, our customers, product
delivery is evidenced by warehouse shipping log as well as signed 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.
 
 g)
                    Recent
      accounting pronouncements:
 
 In May
2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No.162, “The Hierarchy of Generally
Accepted Accounting Principles”. SFAS 162 indicates the entity (not its auditor)
that is responsible for selecting accounting principles for financial statements
that are presented in conformity with GAAP. Accordingly, the GAAP hierarchy
should reside in the accounting literature established by the FASB and is
issuing SFAS 162 to achieve that result. SFAS 162 also identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy).SFAS 162 is effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company is in the process of evaluating the new disclosure
requirements under SFAS 162.
 
 In March
2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No.161,"Disclosures about Derivative
Instruments and Hedging Activities - An Amendment of SFAS No. 133" ("SFAS 161").
SFAS 161 seeks to improve financial reporting for derivative instruments and
hedging activities by requiring enhanced disclosures regarding the impact on
financial position, financial performance, and cash flows. To achieve this
increased transparency, SFAS 161 requires (1) the disclosure of the fair value
of derivative instruments and gains and losses in a tabular format;(2) the
disclosure of derivative features that are credit risk-related; and
(3)cross-referencing within the footnotes. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008 (that is, January 1, 2009, for entities with calendar year-ends)., with
early application encouraged.  The Company is in the process of
evaluating the new disclosure requirements under SFAS 161.
 
 6
 
 In
December 2007, the Financial Accounting Standard Board (“FASB”) issued SFAS No.
160, “Non-controlling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51” which clarifies that a non-controlling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This statement also
changes the way the consolidated income statement is presented. It requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the non-controlling interest. In addition,
it requires disclosure, on the face of the consolidated statement of income, of
the amounts of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years beginning on or after December 15,
2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier
adoption is prohibited. The company is currently in the process of evaluating
the effect, if any, the adoption of SFAS No. 160 will have on its consolidated
results of operations, financial position, and financial
disclosure.
 
 In
December 2007, Statement of Financial Accounting Standards No. 141(R), Business
Combinations, was issued. SFAS No. 141R replaces SFAS No. 141, Business
Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that
the acquisition method of accounting (which SFAS 141 called the purchase method)
be used for all business combinations and for an acquirer to be identified for
each business combination. SFAS 141R requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date, with limited exceptions. This replaces SFAS 141's cost-allocation process,
which required the cost of an acquisition to be allocated to the individual
assets acquired and liabilities assumed based on their estimated fair values.
SFAS 141R also requires the acquirer in a business combination achieved in
stages (sometimes referred to as a step acquisition) to recognize the
identifiable assets and liabilities, as well as the non-controlling interest in
the acquiree, at the full amounts of their fair values (or other amounts
determined in accordance with SFAS 141R). SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). An
entity may not apply it before that date. The Company is currently evaluating
the impact that adopting SFAS 141R will have on its financial
statements.
  7
  2.
                    INVENTORIES
 
 Inventories
as of September 30, 2008 and December 31, 2007, consisted of the
following:
  September
      30, 2008
                        
                        
                        December
      31, 2007Unaudited
                        
                        
                        AuditedRaw
      materials
                        
                        $
                        3,562,367
                        
                        
                        $
                        536,319Work
      in process
                        
                        
                        209,044
                        
                        
                        
                        103,395Finished
      goods
                        
                        
                        394,929
                        
                        
                        
                        249,932Packaging
      and other
                        
                        
                        45,466
                        
                        
                        
                        30,494Total
                        
                        $
                        4,211,806
                        
                        
                        $
                        920,140
 3.
                    PROPERTY
      AND EQUIPMENT
 
 As of
September 30, 2008 and December 31, 2007, property and equipment consisted of
the following:
  Estimated
      Life
                    
                    
                    September
      30, 2008
                    
                    
                    December
      31, 2007Unaudited
                    
                    
                    AuditedBuilding
      and improvement
                    
                    
                    27-35
                    
                    
                    $
                    5,020,936
                    
                    
                    $
                    1,507,241Manufacturing
      equipment
                    
                    
                    1-8
                    
                    
                    
                    1,212,798
                    
                    
                    
                    1,128,887Office
      furniture and equipment
                    
                    
                    5
                    
                    
                    
                    30,699
                    
                    
                    
                    28,575Vehicle
                    
                    
                    2-8
                    
                    
                    
                    12,587
                    
                    
                    
                    11,716Machinery
      improvement
                    
                    
                    3
                    
                    
                    
                    81,003
                    
                    
                    
                    75,398Subtotal
                    
                    
                    
                    
                    
                    
                    6,358,022
                    
                    
                    
                    2,751,817Less:
      Accumulated depreciation
                    
                    
                    
                    
                    
                    
                    1,270,660
                    
                    
                    
                    996,987Total
                    
                    
                    
                    
                    
                    $
                    5,087,362
                    
                    
                    $
                    1,754,830
  For the
nine months ended September 30, 2008 and 2007, depreciation expenses amounted to
$194,015 and $185,462 respectively.
  4.
                    DEPOSIT
      FOR PURCHASE OF FIXED ASSETS
 
 The
Company intends to purchase certain factory facilities from an unrelated company
without disclosing its own identity. The purchase was arranged through an agent
who is not affiliated with the Company. $2,032,431 (equivalent to RMB 13.8
million) was paid to the agent as of the nine months ended September 30, 2008.
The agency agreement has no firm commitment on the purchase but it states a
maximum price of RMB 50 million that the Company is willing to pay for the facilities . The deposit is fully refundable if the
purchase does not close.
  8
  5.
                    DEPOSIT
      FOR PURCHASE OF INTANGIBLE ASSETS
 
 Pursuant
to the terms of a Cancellation Agreement dated August 19, 2008, the Company and
Shaanxi Shuta Wood Products Co., Ltd. (“Shaanxi Shuta”) terminated the Land
Transfer Agreement by which the Company had intended to purchase the right to
use a parcel of land from Shaanxi Shuta in the ShaanXi Baoji district of the
PRC. The entire $1,472,776 (equivalent to RMB 10 million) deposit that had been
previously paid to Shaanxi Shuta pursuant to the Land Transfer Agreement was
refunded to the Company in August 2008 and September 2008.
 
 6.
                    DEPOSIT
      FOR ACQUISITION
 
 The
Company intends to acquire a private company located in Sichuan China called
Sichuan Hanxin Cork Merchandises Co, Ltd. (“ Sichuan
Hanxin ”). The purchase price of Sichuan
Hanxin shall not exceed $2,945,551 (RMB20 million). As of September 30,
2008, the Company had paid a deposit of $1,472,776 (equivalent to RMB10 million)
to Sichuan Hanxin . Sichuan
Hanxin is a manufacturer for cork products and is one of the Company’s
current cork raw materials providers.
 
 7.
                    CONSTRUCTION
      IN PROGRESS
 
 Student
dormitory construction and interior decorations were completed in June 2008. All
costs of approximately $2.4 million (equivalent to RMB 16,525,621) had been
transferred to the property as of June 30, 2008. While construction has been
completed, the Company still has not acquired the occupation certificates and
ownership certificates with respect to the dormitory. The Company expects to
receive these certificates before the end of this year. However, there can be no
assurances that it will receive them by the end of the year.
 
 The fifth
workshop was completed in September 2008. All costs of $967,807 (equivalent to
RMB 6,571,311) had been transferred to the property as of September 30, 2008.
Commencing in October 2008, the Company installed the internal equipments for
fifth workshop, and expects to complete this installation project before the
ended of year 2008.  However, there can be no assurance that it will
be completed by then.
 
 As of
September 30, 2008 and December 31, 2007, construction in process consisted of
the following:
  September
      30, 2008
                      
                      
                      December
      31, 2007Unaudited
                      
                      
                      AuditedDormitory
      construction and decoration
                      
                      $
                      -
                      
                      
                      $
                      2,204,922Fifth
      workshop construction
                      
                      
                      -
                      
                      
                      
                      616,895Total
                      
                      $
                      -
                      
                      
                      $
                      2,821,817
 8.
                    INVESTMENT
      – AT COST
 
 On June
28, 2005, the Company purchased a 12% equity interest of Shaanxi DeRong
Technology Information Development Co. Ltd. (“DeRong”), a PRC corporation, for
$2,061,886 (equivalent to RMB 14 million). DeRong owns a cork tree forest
plantation in China. The investment is for long term and is stated at
cost.
  9.
                    INTANGIBLE
      ASSETS
 
 On
September 27, 2001, the Company purchased the right to use a parcel of land for
40 years. The purchase price is being amortized over the term of the right. In
addition, the Company was assigned ownership of three patent rights from its
major stockholder and Chairman, Mr. Fang She Zhang, during the quarter ended
June 30, 2008. These patents were assigned without any payment due to Mr. Zhang.
These three patent rights are used as part of a vital technique for the
production of the Company’s products. The application and filing costs of these
three patent rights was $4,199 (equivalent to RMB28,800). As of September 30,
2008 and December 31, 2007, intangible assets, less accumulated amortization
consisted of the following:
  September
      30, 2008
                      
                      
                      December
      31, 2007Unaudited
                      
                      
                      AuditedIntangible
      assets
                      
                      $
                      209,332
                      
                      
                      $
                      190,901Less:
      Accumulated amortization
                      
                      
                      35,970
                      
                      
                      
                      29,828Total
                      
                      $
                      173,362
                      
                      
                      $
                      161,073
 
 For the
nine months ended September 30, 2008 and 2007, amortization expense amounted to
$3,816 and $3,407, respectively.
 
 The
amortization expenses for the next five years are as follows:
 
 2009
                    
                    $
                    5,2952010
                    
                    
                    5,2952011
                    
                    
                    5,2952012
                    
                    
                    5,2952013
                    
                    
                    5,295
 
 9
 
 10.
                    LOAN
      PAYABLE
 
 Loan
payable as of September 30, 2008 and December 31, 2007 consisted of the
following:
  
 September
      30, 2008
                    
                    
                    December
      31, 2007Unaudited
                    
                    
                    AuditedOn November 30,
      2007, the Company obtained a short-term loan RMB3.9 million (equivalent at
      that time to $534,642 ) from Xian Xitaoyuan Credit Bank by pledging the
      Company's building in YuLerYuan with bank, The loan interest is 8.37 %oper month. The Company had paid principal RMB3.9 million back to
      bank on June 30, 2008. On the same day, the company borrowed RMB3 million
      (equivalent to $441,833 ) from the same bank again, but the new interest
      rate had been increased to 9.967%oper month. The expiration date for this new short-term loan is June
      30, 2009.
                    
                    $
                    441,833
                    
                    
                    $
                    534,642Total
      Loan Payable
                    
                    $
                    441,833
                    
                    
                    $
                    534,642
  
 11.
                    CONVERTIBLE
      NOTE AND
WARRANTS
 
 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. If the Financing was not achieved within the one year term of the
promissory notes, 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
warrants are exercisable at any time after the consummation of the Financing
through the fourth anniversary of the consummation of the Financing (the
"Financing Expiration Date"). Each holder is entitled to purchase the number of
shares of common stock equal to the initial principal amount of such investor's
promissory note DIVIDED BY the lowest cash purchase price paid for the Company's
common stock (or the conversion price or exercise price if the Financing
consists of convertible securities or warrants, respectively) in the Financing
(the "Financing Based Conversion Price") at an exercise price equal to the
Financing Based Conversion Price. If the Financing did not occur within 12
months of the issuance of the warrant, the warrant is exercisable from and after
such date and through the fourth anniversary of the issuance date of the
warrant. In such event, the holder is entitled to purchase the number of shares
of common stock equal to 50% of the initial principal amount of the promissory
note DIVIDED BY $0.228 at an exercise priceequal to
$0.228, subject to certain adjustments as set forth in the warrant. The interest
payable regarding the convertible notes has been accrued and recorded as of
September 30, 2008.The
different amount between the option price in declared date and warrant
conversion price $0.228 time total entitled warrant shares had been charged
directly to discount on convertible note, and the sum was add to additional
paid-in capital-stock warrant in amount of $279,386 as of September 30,
2008.
  10
 
 The
Company’s obligations under the promissory notes are secured by an aggregate of
2,332,899 shares of common stock pledged by Mr. Pengcheng Chen, the Company’s
Chief Executive Officer, and 2,031,191 shares of common stock pledged by Mr.
Zhang (the “Escrow Shares”). In the event that subsequent to the issuance of the
Convertible Notes, the value of the Escrow Shares is less than 150% of the
outstanding principal amount of the promissory notes for 10 consecutive trading
days, then the holder of the promissory notes shall have the right to give the
Company notice (the “Investor Notice”) to deposit or cause to be deposited
additional Escrow Shares such that the value of the Escrow Shares based upon the
volume weighted average price per share for the 20 trading days preceding the
date of the Investor Notice, is equal to 150% of the outstanding principal
amount of the promissory notes.  The Company shall deposit or cause to
be deposited such additional Escrow Shares within 30 days of the date of the
Investor Notice. To the extent the Escrow Shares are not sufficient to meet the
threshold of 150% of the outstanding principal amount of the promissory notes
within 30 days after the Investor Notice, the Company shall grant to Investors a
security interest on the Company’s tangible assets to the extent permitted under
applicable law.
 
 Net
of convertible note as of September 30, 2008 and December 31, 2007 consisted of
the following:
  September
      30, 2008
                      
                      
                      December
      31, 2007Unaudited
                      
                      
                      AuditedConvertible
      note
                      
                      $
                      700,000
                      
                      
                      $
                      -Less: Discount
      on convertible note
                      
                      
                      195,570
                      
                      
                      
                      -Convertible note, net
                      
                      $
                      504,430
                      
                      
                      $
                      -
  11
  12.
                      TAX
      PAYABLE
 
 The
Company and its US subsidiary will file consolidated Federal income tax return
and state franchise tax returns individually. The Company's PRC subsidiaries
file income tax returns under the Income Tax Law of the People's Republic of
China concerning Foreign Investment Enterprises and Foreign Enterprises and
local income tax laws. The Company's BVI subsidiary is exempt from income
taxes.
 
 Per PRC
Income Tax Law, any new foreign owned corporation is exempt from income tax for
the first two years, and 50% exemption of income tax for the next three years
for non high-tech corporation or 15% tax rate for corporation qualified by State
Science and Technology Commission as "High Tech corporation" located in State
"High Tech Zone" approved by China State Council. Hanxin is qualified as a High
Tech corporation. Based on this regulation, Hanxin was exempt from income tax in
year 2003 and 2004 and its income is subject to 15% tax starting from January 1,
2005. The location of CIE is not part of the “High Tech Zone” approved by China
State Council, thus its income is subject to 33%.tax rate. Commencing from
January, 2008, based on the new regulation in the PR, CIE’s income is subject to
25% tax rate.
 
 As of
September 30, 2008 and December 31, 2007, taxes payable consisted the
following:
  September
      30, 2008
                      
                      
                      December
      31, 2007Unaudited
                      
                      
                      AuditedValue-added
      tax
                      
                      $
                      582,062
                      
                      
                      $
                      393,969Corporate
      income tax provision
                      
                      
                      28,159
                      
                      
                      
                      235,465Local taxes
      and surcharges
                      
                      
                      41,349
                      
                      
                      
                      83,330Franchise
      tax
                      
                      
                      16,450
                      
                      
                      
                      55,000Total
                      
                      $
                      668,020
                      
                      
                      $
                      767,764
    13.
                      DUE
      TO STOCKHOLDERS/OFFICERS
  Amounts
due to stockholders/officers are unsecured, non-interest bearing, and are due on
demand.  As of September 30, 2008 and December 31, 2007, the total net
amounts due to the stockholders/officers were $266,919 and $166,199,
respectively, which represented the net amounts owed to shareholders/officers by
the Company.
  12
  14.
                      STOCKHOLDERS
      EQUITY
 
 On August
9, 2005, the Company acquired Hanxin International in exchange for (i)
24,000,000 shares of the Company’s common stock and (ii) 1,000 shares of the
Company’s Series A Preferred Stock, which were converted into 177,185,642 shares
of the Company’s common stock, without taking into effect of a reverse stock
split as described below.
 
 In
November 2005, the Company filed and circulated to its shareholders the
Information Statement which permitted the Company, among other things, to (i)
amend its Articles of Incorporation to increase its authorized shares of common
stock to 200,000,000 shares; (ii) approve one for six reverse split as to all
outstanding shares of common stock of the Company, effective as to holders of
record of shares of common stock on December 9, 2005, (iii) approve a stock
option, SAR and stock bonus plan for the directors, officers, employees and
consultants of the Company. A certificate of amendment officially increasing the
authorized shares of common stock and approving the reverse stock split was
filed with the State of Delaware on December 13, 2005.
 
 On
September 1, 2006, the 1,000 shares Series A preferred stock were converted into
29,530,937 shares of the Company’s common stock. Subsequently, the Company
issued additional 118,123 shares in October 2006 to reflect an under-issuance to
a stockholder of the shares of common stock issuable upon conversion of the
preferred stock.
 
 In May
2008, the board of directors of the Company authorized, and on July 31, 2008 the
Company issued, 150,000 shares of the Company’s common stock to its attorney for
services rendered. In June 2008, the board of directors of the Company
authorized, and on August 14 2008 the Company issued, 100,000 shares of the
Company’s common stock to HAWK Associates, Inc (“Hawk”), its investor relations
firm for services rendered pursuant to the agreement. Accordingly the Company
has 35,663,850 shares of issued and outstanding common stock as of November 15,
2008.
 
 In June
2008, the Company was assigned ownership of three patent rights from its major
shareholder, Mr. Fangshe Zhang.  These patents were assigned without
any payment due to Mr. Zhang. The application and filing costs of these three
patents was RMB28,800 (equivalent to $4,199). In connection therewith, the
Company recorded $4,199 of intangible assets, and same amount of additional paid
in capital as of September 30, 2008.
  13
  15.
                      BASIC
      AND DILUTED EARNING PER
SHARE
 
 The
following table sets forth the computation of basic and diluted net income per
share:
  For
      Three Months Ended September 30,
                        
                        
                        For
      Nine Months Ended September 30,2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Unaudited
                        
                        
                        Unaudited
                        
                        
                        Unaudited
                        
                        
                        UnauditedBasic:Numerator:Net
      income for basic calculation
                        
                        $
                        1,270,405
                        
                        
                        $
                        435,987
                        
                        
                        $
                        2,404,234
                        
                        
                        $
                        934,401Denominator:Weighted
      average common shares
                        
                        
                        35,564,961
                        
                        
                        
                        35,413,850
                        
                        
                        
                        35,464,220
                        
                        
                        
                        35,413,850Net
      income per share — basic
                        
                        
                        0.04
                        
                        
                        $
                        0.01
                        
                        
                        $
                        0.07
                        
                        
                        $
                        0.03Diluted:Numerator:Net
      income for basic calculation
                        
                        $
                        1,270,405
                        
                        
                        $
                        435,987
                        
                        
                        $
                        2,404,234
                        
                        
                        $
                        934,401Effect
      of dilutive securities issued
                        
                        
                        98,594
                        
                        
                        
                        -
                        
                        
                        
                        119,402
                        
                        
                        
                        -Net
      income for diluted calculation
                        
                        $
                        1,368,999
                        
                        
                        $
                        435,987
                        
                        
                        $
                        2,523,636
                        
                        
                        $
                        934,401Denominator:Denominator
      for basic calculation
                        
                        
                        35,564,961
                        
                        
                        
                        35,413,850
                        
                        
                        
                        35,464,220
                        
                        
                        
                        35,413,850Weighted
      average effect of dilutive securities:Warrants
                        
                        
                        160,855
                        
                        
                        
                        -
                        
                        
                        
                        248,077
                        
                        
                        
                        -Convertible
      debt
                        
                        
                        3,070,175
                        
                        
                        
                        -
                        
                        
                        
                        1,273,554
                        
                        
                        
                        -Denominator
      for diluted calculation
                        
                        
                        38,795,991
                        
                        
                        
                        35,413,850
                        
                        
                        
                        36,985,851
                        
                        
                        
                        35,413,850Net
      income per share — diluted
                        
                        $
                        0.04
                        
                        
                        $
                        0.01
                        
                        
                        $
                        0.07
                        
                        
                        $
                        0.03
 16.
                      COMMITMENTS
 
 The
Company leases its office space and production land under operating lease
agreements that expire on December 31, 2008 and October, 2047 respectively. The
Company expects to renew the lease that expires on December 31,
2008.  In order to assure increasing products, the company also leases
two additional properties under operating lease agreements that are scheduled to
expire on November 30, 2008. The Company intends to extend one of these leases
for an additional six (6) months and will let the other lease
expire.  The following is a schedule of future minimum rental office
space and land payments required under these operating leases as of September
30, 2008.
  For
      the Quarter Ending September 30,2009
                      
                      $
                      47,1142010
                      
                      
                      17,1822011
                      
                      
                      17,1822012
                      
                      
                      17,1822013
                      
                      
                      17,182Thereafter
                      
                      
                      585,608Total
      minimum rental payments required
                      
                      $
                      701,450
  14
 
 Rental
and maintenance expenses for office space, land, and building operating leases
amounted to $137,048 and $28,287 for the nine months ended September 30, 2008
and 2007, respectively.
 
 The
Company also leases three patent rights from its Chairman, Mr. Fangshe Zhang,
under operating lease agreements that expire on April 16, 2011. The following is
a schedule of future minimum rental payments required under these operating
leases that have remaining lease terms in excesses of one year as of September
30, 2008.
  For
      the Quarter Ending September 30,2009
                      
                      $
                      343,6332010
                      
                      
                      187,089Total
      minimum rental payments required
                      
                      $
                      530,722
  Patent
lease expenses amounted to $257,726 and $234,913, for the nine months ended
September 30, 2008 and 2007, respectively.
 
 On June
15, 2008, the Company signed an agreement with Hawk to provide investor
relations consulting and advisory services. The term of this agreement is
effective through June 30, 2009. Hawk is paid a retainer fee of $7,500 per month
and the payments are due at the beginning of each month. Hawk was also issued
100,000 restricted 144 shares of the Company’s common stock on August 14,
2008.
  ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 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.
 
 15
 
 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 2008 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.
 
 16
 
 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.
 
 17
 
 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)/
      IncreaseUnaudited
                        
                        
                        UnauditedRevenues
                        
                        $
                        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
      ExpensesSelling
      expenses
                        
                        
                        1,152,517
                        
                        
                        
                        447,886
                        
                        
                        
                        704,631
                        
                        
                        
                        157
                        %General
      and administrative expense
                        
                        
                        244,575
                        
                        
                        
                        95,773
                        
                        
                        
                        148,802
                        
                        
                        
                        155
                        %Total
      Operating Expenses
                        
                        
                        1,397,092
                        
                        
                        
                        543,659
                        
                        
                        
                        853,433
                        
                        
                        
                        157
                        %Income
      From Operations
                        
                        
                        1,751,180
                        
                        
                        
                        594,496
                        
                        
                        
                        1,156,684
                        
                        
                        
                        195
                        %Other
      Income (Expense)Interest
      (expense), net
                        
                        
                        (113,771
                        )
                        
                        
                        (15,250
                        )
                        
                        
                        (98,521
                        )
                        
                        
                        646
                        %Other
      income (expense), net
                        
                        
                        25,705
                        
                        
                        
                        (13,843
                        )
                        
                        
                        39,548
                        
                        
                        
                        -286
                        %Total
      Other (Expense)
                        
                        
                        (88,066
                        )
                        
                        
                        (29,093
                        )
                        
                        
                        (58,973
                        )
                        
                        
                        203
                        %Income
      Before Taxes and Minority Interest
                        
                        
                        1,663,114
                        
                        
                        
                        565,403
                        
                        
                        
                        1,097,711
                        
                        
                        
                        194
                        %Income
      Tax Provision
                        
                        
                        272,822
                        
                        
                        
                        89,136
                        
                        
                        
                        183,686
                        
                        
                        
                        206
                        %Income
      Before Minority Interest
                        
                        
                        1,390,292
                        
                        
                        
                        476,267
                        
                        
                        
                        914,025
                        
                        
                        
                        192
                        %Minority
      Interest
                        
                        
                        119,887
                        
                        
                        
                        40,280
                        
                        
                        
                        79,607
                        
                        
                        
                        198
                        %Net
      Income
                        
                        $
                        1,270,405
                        
                        
                        $
                        435,987
                        
                        
                        $
                        834,418
                        
                        
                        
                        191
                        %
 18
 
 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 $1,397,092 as compared to $543,659 for the three months
ended September 30, 2007, a increase of $853,433
or 157%.
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
($88,066)
as compared to total other expense net of ($29,093) for the three months ended
September 30, 2007, an increase of $58,973
or 203% .
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 ($113,771)
as compared to net interest expense of ($15,250) for the three months ended
September 30, 2007, an increase of ($98,521)
or 646% .
The increase was primarily due to the Company consummated
an offering of  convertible debt and common stock purchase warrant in
June 2008, accordingly, more interest expense had been accrued in the
current quarter as compared to same period of last year.
 
 19
 
 Income
Tax
 
 Our
income taxes increased by $183,686
or 206%
to $272,822
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)/
      IncreaseUnaudited
                            
                            
                            UnauditedRevenues
                            
                            $
                            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
      ExpensesSelling
      expenses
                            
                            
                            2,264,603
                            
                            
                            
                            1,033,200
                            
                            
                            
                            1,231,403
                            
                            
                            
                            119
                            %General
      and administrative expense
                            
                            
                            660,932
                            
                            
                            
                            297,860
                            
                            
                            
                            363,072
                            
                            
                            
                            122
                            %Total
      Operating Expenses
                            
                            
                            2,925,535
                            
                            
                            
                            1,331,060
                            
                            
                            
                            1,594,475
                            
                            
                            
                            120
                            %Income
      From Operations
                            
                            
                            3,249,346
                            
                            
                            
                            1,175,230
                            
                            
                            
                            2,074,116
                            
                            
                            
                            176
                            %Other
      Income (Expense)Interest
      (expense) income, net
                            
                            
                            (160,128
                            )
                            
                            
                            6,820
                            
                            
                            
                            (166,948
                            )
                            
                            -2448
                            %Other
      income, net
                            
                            
                            30,671
                            
                            
                            
                            22,625
                            
                            
                            
                            8,046
                            
                            
                            
                            36
                            %Total
      Other (Expense) Income
                            
                            
                            (129,457
                            )
                            
                            
                            29,445
                            
                            
                            
                            (158,902
                            )
                            
                            
                            -540
                            %Income
      Before Taxes and Minority Interest
                            
                            
                            3,119,889
                            
                            
                            
                            1,204,675
                            
                            
                            
                            1,915,214
                            
                            
                            
                            159
                            %Income
      Tax Provision
                            
                            
                            500,733
                            
                            
                            
                            185,731
                            
                            
                            
                            315,002
                            
                            
                            
                            170
                            %Income
      Before Minority Interest
                            
                            
                            2,619,156
                            
                            
                            
                            1,018,944
                            
                            
                            
                            1,600,212
                            
                            
                            
                            157
                            %Minority
      Interest
                            
                            
                            214,922
                            
                            
                            
                            84,543
                            
                            
                            
                            130,379
                            
                            
                            
                            154
                            %Net
      Income
                            
                            $
                            2,404,234
                            
                            
                            $
                            934,401
                            
                            
                            $
                            1,469,833
                            
                            
                            
                            157
                            %
 20
 
 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 $2,925,535
as compared to $1,331,060 for the nine months ended September 30, 2007, an
increase of $1,594,475
or 120% .
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 ($129,457)
as compared to total other income net of $29,445 for the nine months ended
September 30, 2007, a decrease of ($158,902)
or 540% .
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.
 
 21
 
 For the
nine months ended September 30, 2008, net interest expense was ($160,128)
as compared to net interest income of $6,820 for the nine months ended September
30, 2007, a decrease of ($166,948)
or 2448% .
This decrease was primary attributable to the Company consummated an offering of convertible debt and common stock
purchase warrant in June 2008 , and had 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 $315,002
to $500,733
for the nine months ended September 30, 2008 compared to $185,731 for the nine
months ended September 30, 2007, an increase of 170% .
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 ($1,277,280)
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.
 
 22
 
 With
approximately $ 8.3 3 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.
 ITEM 3.QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  A smaller
reporting company is not required to provide the information required by this
Item.
 
 ITEM
4.  CONTROLS AND PROCEDURES
 
 Evaluation of Disclosure Controls
and Procedures. Under the supervision and with the
participation  of  our  management,  including  our
Chief Executive Officer, Pengcheng Chen, and Chief Financial Officer, Yi Tong,
we  evaluated  the  effectiveness  of
the design and operation  of
our  disclosure  controls  and  procedures  (as  defined  in  Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange
Act")) as of the end of the  period  covered  by
this  report.  Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures as of the end of the period covered by this report were
effective such that the  information  required to be
disclosed by us in reports  filed under
the  Securities  Exchange  Act of 1934 is
(i)  recorded, processed,  summarized  and
reported  within the time  periods  specified in
the SEC's rules and forms and (ii) accumulated and  communicated to
our management to allow timely
decisions  regarding  disclosure.  A controls
system cannot provide absolute assurance, however, that the objectives of the
controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.
 
 Changes in Internal Control Over
Financial Reporting.  During the most recent quarter ended
September 30, 2008, there has been no change in our internal control over
financial  reporting  (as defined in
Rule  13a-15(f) and 15d-15(f) under the Exchange Act) ) that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
 
 23
  PART
II - OTHER INFORMATION
 
 ITEM
1.     LEGAL PROCEEDINGS.
 
 None
 
 ITEM
1A.  RISK FACTORS.
 
 A smaller
reporting company is not required to provide the information required by this
Item.
  ITEM
2.     UNREGISTERED SALES FO EQUITY SECURITIES AND USE OF
PROCEEDS.
 
 1.  In
May 2008, the board of directors of the Company authorized, and on July 31, 2008
the Company issued, 150,000 shares of the Company’s common stock to its
attorneys, McLaughlin & Stern, LLP, for services rendered.
 
 2.  On
August 14, 2008 the Company issued, 100,000 shares of the Company’s common stock
to Hawk Associates, Inc. for services rendered pursuant to the term of the
agreement with Hawk Associates.
 
 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
                        
                        Description31.1
                        
                        Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of2002.31.2
                        
                        Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of2002.32.1
                        
                        Certification
      of Chief Executive Officer Certification pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                        
                        Certification of Chief Financial
      Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
  24
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant has caused
his report to be signed on its behalf by the undersigned, thereunto duly
authorized.
    ASIA CORK INC.Dated:
      February
      11, 2010
                        By:
                        /s/
      Pengcheng ChenPengcheng
      Chen, Chief Executive OfficerBy:
                        /s/
      Yi TongYi
      Tong, Chief Financial Officer
  
     
 25