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 June 30, 2009





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
              No. 72 Second Keji Road, Hi
      Tech Zone, Xi’An, Shaanxi 710075 P.R. CHINA(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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files.)  Yes þ   No
o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One)




Large
      accelerated filer  o
            Accelerated
      filer  o
            Non-accelerated
      filer  o
            Small
      reporting company þ




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)  Yes o No þ





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: On  August
15, 2009 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): Yes o  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 JUNE 30, 2009





INDEX






PagePART I
            
            FINANCIAL
      INFORMATION
            1Item 1:
            
            Financial
      Statements
            1Item 2:
            
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            18Item 3:
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            25Item
    4:
            
            Controls and
      Procedures
            25PART II
            
            OTHER
      INFORMATION26Item 1:
            
            Legal
      Proceedings
            26Item 1A:
            
            Risk
      Factors
            26Item 2:
            
            Unregistered
      Sales of Equity Securities and Use of
      Proceeds
            26Item 3:
            
            Default upon
      Senior Securities
            26Item 4:
            
            Submission of
      Matters to a Vote of Security Holders
            26Item 5:
            
            Other
      Information
            26Item 6:
            
            Exhibits
            26















PART
I




Financial
Information


ITEM
1. FINANCIAL
STATMENTS


Asia
      Cork Inc. and SubsidiariesCondensed
      Consolidated Balance SheetsJune
      30, 2009
                
                
                December
      31, 2008(Unaudited)
                
                
                (Audited)Assets:Current
      AssetsCash
      and equivalents
                
                $
                497,724
                
                
                $
                23,605Accounts
      receivable, net of allowance for doubtful accounts of $28,290 and $23,787,
      respectively
                
                
                5,710,647
                
                
                
                4,956,005Inventories
                
                
                2,116,528
                
                
                
                2,756,011Advance
      to suppliers
                
                
                3,280,798
                
                
                
                2,562,357Loan
      to unrelated party
                
                
                1,463,981
                
                
                
                1,465,738Deferred
      income tax assets
                
                
                6,264
                
                
                
                7,757Prepayments
      and other current assets
                
                
                59,645
                
                
                
                34,718Total
      Current Assets
                
                
                13,135,587
                
                
                
                11,806,191Property
      and Equipment - Net
                
                
                4,661,015
                
                
                
                4,813,629Deposit
      for Purchase of Fixed Assets
                
                
                2,020,294
                
                
                
                2,022,719Deposit
      for Acquisition
                
                
                1,463,981
                
                
                
                1,465,738Investment
      - At Cost
                
                
                2,049,573
                
                
                
                2,052,034Intangible
      Assets- Net
                
                
                168,266
                
                
                
                171,178Deferred
      Income Tax Assets
                
                
                14,452
                
                
                
                16,586Total
      Assets
                
                
                23,513,168
                
                
                
                22,348,075Liabilities
      and Equity:Liabilities:Current
      LiabilitiesAccounts
      payable and accrued expenses
                
                
                1,800,898
                
                
                
                1,395,366Loan
      payable
                
                
                -
                
                
                
                439,722Convertible
      note, net
                
                
                700,000
                
                
                
                574,276Customer
      deposit
                
                
                10,106
                
                
                
                10,118Taxes
      payable
                
                
                572,242
                
                
                
                275,224Due
      to stockholders/officers
                
                
                177,486
                
                
                
                177,699Other
      current liabilities
                
                
                18,506
                
                
                
                33,027Total
      Current Liabilities
                
                
                3,279,238
                
                
                
                2,905,432Total
      Liabilities
                
                
                3,279,238
                
                
                
                2,905,432Equity:Asia
      Cork Inc. Stockholders' Equity:Common
      stock, $0.0001 par value, 200,000,000 shares authorized,35,663,850
      issued and outstanding
                
                
                3,566
                
                
                
                3,566Additional
      paid-in capital
                
                
                4,485,446
                
                
                
                4,485,446Additional
      paid-in capital  stock warrant
                
                
                279,386
                
                
                
                279,386Reserve
      funds
                
                
                2,385,622
                
                
                
                2,236,716Retained
      earnings
                
                
                8,559,328
                
                
                
                7,966,783Accumulated
      other comprehensive income
                
                
                2,645,084
                
                
                
                2,668,724Total
      Asia Cork Inc. Stockholders' Equity
                
                
                18,358,432
                
                
                
                17,640,621Noncontrolling
      Interest
                
                
                1,875,498
                
                
                
                1,802,022Total
      Equity
                
                
                20,233,930
                
                
                
                19,442,643Total
      Liabilities and Equity
                
                $
                23,513,168
                
                
                $
                22,348,075
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
 
 1
 
  Asia Cork Inc. and
      SubsidiariesCondensed
      Consolidated Statements of Operations (Unaudited)For
      Three Months Ended June 30,
                  
                  
                  For
      Six Months Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Revenues
                  
                  $
                  6,003,271
                  
                  
                  $
                  6,366,384
                  
                  
                  $
                  6,905,775
                  
                  
                  $
                  8,882,729Cost
      of Goods Sold
                  
                  
                  3,861,118
                  
                  
                  
                  4,173,021
                  
                  
                  
                  4,550,705
                  
                  
                  
                  5,856,120Gross
      Profit
                  
                  
                  2,142,153
                  
                  
                  
                  2,193,363
                  
                  
                  
                  2,355,070
                  
                  
                  
                  3,026,609Operating
      ExpensesSelling
      expenses
                  
                  
                  794,478
                  
                  
                  
                  832,792
                  
                  
                  
                  919,643
                  
                  
                  
                  1,112,086General
      and administrative expense
                  
                  
                  158,153
                  
                  
                  
                  342,888
                  
                  
                  
                  272,435
                  
                  
                  
                  416,357Total
      Operating Expenses
                  
                  
                  952,631
                  
                  
                  
                  1,175,680
                  
                  
                  
                  1,192,078
                  
                  
                  
                  1,528,443Income
      From Operations
                  
                  
                  1,189,522
                  
                  
                  
                  1,017,683
                  
                  
                  
                  1,162,992
                  
                  
                  
                  1,498,166Other
      Income (Expense)Interest
      expense, net
                  
                  
                  (102,981
                  )
                  
                  
                  (33,804
                  )
                  
                  
                  (217,365
                  )
                  
                  
                  (46,357
                  )Other
      income (expense), net
                  
                  
                  27,775
                  
                  
                  
                  (29,177
                  )
                  
                  
                  52,500
                  
                  
                  
                  4,966Total
      Other Expense
                  
                  
                  (75,206
                  )
                  
                  
                  (62,981
                  )
                  
                  
                  (164,865
                  )
                  
                  
                  (41,391
                  )Income
      Before Taxes
                  
                  
                  1,114,316
                  
                  
                  
                  954,702
                  
                  
                  
                  998,127
                  
                  
                  
                  1,456,775Provision
      for Income Taxes
                  
                  
                  180,376
                  
                  
                  
                  151,120
                  
                  
                  
                  183,200
                  
                  
                  
                  227,911Net
      Income Before Noncontrolling Interest
                  
                  
                  933,940
                  
                  
                  
                  803,582
                  
                  
                  
                  814,927
                  
                  
                  
                  1,228,864Less:
      Net income attributable to the noncontrolling interest
                  
                  
                  78,948
                  
                  
                  
                  59,935
                  
                  
                  
                  73,476
                  
                  
                  
                  95,035Net
      Income Attributable to Asia Cork Inc.
                  
                  $
                  854,992
                  
                  
                  $
                  743,647
                  
                  
                  $
                  741,451
                  
                  
                  $
                  1,133,829Earnings
      Per Share - Basic and Diluted:-
      Basic
                  
                  $
                  0.02
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.03-
      Diluted:
                  
                  $
                  0.02
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.03Weighted
      Common Shares Outstanding - Basic and Diluted-
      Basic
                  
                  
                  35,663,850
                  
                  
                  
                  35,413,850
                  
                  
                  
                  35,663,850
                  
                  
                  
                  35,413,850-
      Diluted:
                  
                  
                  38,734,025
                  
                  
                  
                  36,718,822
                  
                  
                  
                  38,734,025
                  
                  
                  
                  36,343,578
 2
  Asia
      Cork Inc. and SubsidiariesCondensed
      Consolidated Statements of Comprehensive Income
(Unaudited)For
      Six Months Ended June 30,2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)Net
      Income Before Noncontrolling Interest
                  
                  $
                  814,927
                  
                  
                  $
                  1,228,864Other
      Comprehensive (Loss) Income:Foreign
      Currency Translation (Loss) Income
                  
                  
                  (23,640
                  )
                  
                  
                  995,517Comprehensive
      Income
                  
                  $
                  791,287
                  
                  
                  $
                  2,224,381
  3




Asia Cork Inc. and
      SubsidiariesCondensed
      Consolidated Statements of Changes in
    Equity (Unaudited)For
      Six Months Ended June 30, 2009 and the Year Ended December 31,
      2008Asia
      Cork Inc. Stockholders' EquityCommon
      Stock,
                
                
                
                
                
                
                
                
                
                
                
                Retained
      Earnings / (Accumulated Deficit)
                
                
                Other
      Comprehensive Income (Expense)
                
                
                Noncontrolling
      InterestNo.
      of Shares
                
                
                Amount
                
                
                Additional
      Paid-in Capital
                
                
                Additional
      Paid-in Capital Stock Warrant
                
                
                Reserve
      Fund
                
                
                TotalBalance,
      December 31, 2007
                
                
                35,413,850
                
                
                $
                3,541
                
                
                $
                4,396,772
                
                
                $
                -
                
                
                $
                1,741,715
                
                
                $
                5,729,630
                
                
                $
                1,564,966
                
                
                $
                1,522,318
                
                
                $
                14,958,942Patent
      rights donated by chairman
                
                
                -
                
                
                
                -
                
                
                
                4,199
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,199Issued converbile note withstock
      warrant in June, 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                279,386
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                279,386Issued
      new common stocks onJuly
      31, 2008 for service received
                
                150,000
                
                
                
                15
                
                
                
                43,485
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                43,500Issue
      new common stocks onAugust
      14, 2008 for service received
                100,000
                
                
                
                10
                
                
                
                40,990
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                41,000Net
      income for year ended December 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,732,154
                
                
                
                -
                
                
                
                279,704
                
                
                
                3,011,858Appropriation
      of Reserve funds
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                495,001
                
                
                
                (495,001
                )
                
                
                -
                
                
                
                -
                
                
                
                -Foreign
      currency translation gain
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,103,758
                
                
                
                -
                
                
                
                1,103,758Balance,
      December 31, 2008
                
                
                35,663,850
                
                
                $
                3,566
                
                
                $
                4,485,446
                
                
                $
                279,386
                
                
                $
                2,236,716
                
                
                $
                7,966,783
                
                
                $
                2,668,724
                
                
                $
                1,802,022
                
                
                $
                19,442,643Net
      income for six months ended June 30, 2009
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                741,451
                
                
                
                
                
                
                
                73,476
                
                
                
                814,927-Appropriation
      of Reserve funds
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                
                
                
                148,906
                
                
                
                (148,906
                )
                
                
                
                
                
                
                
                
                
                
                (0
                )-Foreign
      currency translation loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (23,640
                )
                
                
                
                
                
                
                (23,640
                )Balance,
      June 30, 2009
                
                
                35,663,850
                
                
                $
                3,566
                
                
                $
                4,485,446
                
                
                $
                279,386
                
                
                $
                2,385,622
                
                
                $
                8,559,328
                
                
                $
                2,645,084
                
                
                $
                1,875,498
                
                
                $
                20,233,930
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  4
  Asia Cork Inc. and
      SubsidiariesCondensed
      Consolidated Statements of Cash
    Flows  (Unaudited)For
      the Six Months Ended June 30,2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)Cash
      Flows From Operating ActivitiesNet
      Income
                
                $
                741,451
                
                
                $
                1,133,829Adjustments
      to Reconcile Net Income to Net CashProvided
      by (Used in) Operating ActivitiesDepreciation
      and amortization
                
                
                149,497
                
                
                
                117,426Bad
      debt adjustment
                
                
                4,530
                
                
                
                (2,586
                )Net
      income attributable to noncontrolling interest
                
                
                73,476
                
                
                
                95,035Deferred
      income tax valuation allowance
                
                
                3,596
                
                
                
                -Consulting
      fees adjusted from deferred
                
                
                19,680
                
                
                
                1,640Interest
      expenses for discount on convertible note
                
                
                130,649
                
                
                
                13,969Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (766,034
                )
                
                
                (486,350
                )Inventories
                
                
                636,942
                
                
                
                (1,282,737
                )Advance
      to suppliers
                
                
                (722,379
                )
                
                
                (285,438
                )Prepayments
      and other current assets
                
                
                (44,679
                )
                
                
                (62,242
                )Accounts
      payable and accrued expenses
                
                
                407,694
                
                
                
                290,430Customer
      deposits
                
                
                -
                
                
                
                147,133Taxes
      payable
                
                
                297,705
                
                
                
                (16,854
                )Other
      current liabilities
                
                
                (14,499
                )
                
                
                8,049Net
      Cash Provided by (Used in) Operating Activities
                
                
                917,629
                
                
                
                (328,696
                )Cash
      Flows From Investing ActivitiesPayment
      for construction in process
                
                
                -
                
                
                
                (33,532
                )Net
      Cash Used in Investing Activities
                
                
                -
                
                
                
                (33,532
                )Cash
      Flows From Financing ActivitiesProceeds
      from long-term debt
                
                
                -
                
                
                
                437,375Payments
      to long-term debt
                
                
                (439,722
                )
                
                
                (568,588
                )Proceeds
      from convertible note
                
                
                -
                
                
                
                700,000Net
      Cash (Used in) Provided  by Financing Activities
                
                
                (439,722
                )
                
                
                568,787Net
      Increase in Cash and Equivalents
                
                
                477,907
                
                
                
                206,559Effect
      of Exchange Rate Changes on Cash
                
                
                (3,788
                )
                
                
                (105,736
                )Cash
      and Equivalents at Beginning of Period
                
                
                23,605
                
                
                
                367,396Cash
      and Equivalents at End of Period
                
                $
                497,724
                
                
                $
                468,219SUPPLEMENT
      DISCLOSURES OF CASH FLOW INFORMATIONInterest
      paid
                
                $
                27,840
                
                
                $
                31,818Income
      taxes paid
                
                $
                134,490
                
                
                $
                295,132SUPPLEMENTAL
      SCHEDULE OF NON-CASH INVESTING ANDFINANCING
      ACTIVITIESConstruction
      in process transferred out to property
                
                $
                -
                
                
                $
                2,409,299Shareholder
      donated intangible assets into the Company without payment
                
                $
                -
                
                
                $
                4,199Declared
      common stock for part of consulting fees
                
                $
                -
                
                
                $
                41,000
 5


Asia
Cork Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements (Unaudited)
  1.
              BASIS
      OF PRESENTATION
 
 a)
              Interim
      financial statements:
 
 The
unaudited condensed 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, 2008 was derived from the audited consolidated
financial statements included in the Company's Annual Report on Form 10-K. These
interim financial statements should be read in conjunction with that
report.
 
 The
condensed 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:
 
 Asia Cork
Inc. (f/k/a Hankersen International Corp.) (“Asia Cork") was incorporated on
August 1, 1996, under the laws of the State of Delaware. Until August 2005, Asia
Corky had no operations and the sole purpose of Asia Cork was to locate and
consummate a merger or acquisition with a private entity.
 
 On July
11, 2008, Asia Cork’s wholly owned subsidiary, Asia Cork Inc., was merged into
its parent, Asia Cork, in order to change the name of Asia Cork, after approval
by the Board of Directors of Asia Cork pursuant to the Delaware General
Corporation Law. Asia Cork 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, Asia Cork assumed the name of its
wholly owned subsidiary following the merger and now operates under the name
Asia Cork Inc. Asia Cork’s common stock is quoted on the Over the Counter
Bulletin Board under the trading symbol “AKRK.OB.
 
 Asia Cork
and all its subsidiaries listed below will be called “the Company” in the
accompanying condensed consolidated financial statements.
 
 6
 In August
2005, Asia Cork, through Kushi Sub, Inc., a newly formed Delaware corporation
and wholly-owned subsidiary of Asia Cork ("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. Asia Cork acquired Hanxin International in exchange
for shares of common stock and shares of the Series A Preferred Stock of Asia
Cork. The capitalizations are described in further detail in Note 14 to the
accompanying condensed consolidated financial statements.
 
 Subsequent
to the merger and upon the conversion of the Series A Preferred Stock, the
former shareholders of Hanxin International will own 95% of the outstanding
shares of Asia Cork'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.
 
 Hanxin
International has no other business activities but owns 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 engages in cork trading
businesses.
 
 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 through the
distributors or agents.
  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 2009 and 2008 include the estimated useful lives and
fair values of the assets. Actual results could differ from those
estimates.
  d)
              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
collectability 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, or shipping documents 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.
 
 7
 e)
              Income
      taxes
 
 The
Company and its U. S. subsidiary will file consolidated federal income taxes
return and state franchise tax annual report 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.
 
 The
Company follows Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.  f)  Stock-based
compensation
  g)  Basic and diluted net
income per share
    8
  h)
              Foreign
      currency translation
 
 The
reporting currency of the Company is the U.S. dollar. The functional currencies
of the Company's subsidiaries are local currencies, primarily the Chinese
Renminbi. The financial statements are translated into U.S. dollars using
period-end rates of exchange for assets and liabilities and average rates of
exchange for the period for revenues and expenses. Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in other comprehensive income or
loss.
  i)
              Recent
      accounting pronouncements:
 
 In
June 2009, the FASB issued SFAS 168, The FASB Accounting Standards
Codification TM and the Hierarchy of Generally Accepted Accounting Principles –
a replacement of FASB Statement No. 162. The FASB Accounting Standards
Codification TM (“Codification”) will become the source of authoritative U.S.
generally accepted accounting principles (“GAAP”) recognized by FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. On the effective date of SFAS 168, the Codification
will supersede all then-existing non-SEC accounting and reporting standards. All
other nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative. SFAS 168 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. Adoption of SFAS 168 is not expected to have a material impact on the
Company’s results of operations or financial position.
 
 In
June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation
No. 46(R), which improves financial reporting by enterprises involved with
variable interest entities. SFAS 167 addresses (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities , as a result of the elimination of
the qualifying special-purpose entity concept in SFAS 166 and (2) concerns
about the application of certain key provisions of FIN 46(R), including those in
which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprise’s involvement in a
variable interest entity. SFAS 167 shall be effective as of the beginning of
each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within the first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. Adoption of SFAS 167 is not expected to have a
material impact on the Company’s results of operations or financial
position.
 
 In
May 2009, the FASB issued SFAS 165, Subsequent Events , which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. An entity should apply the requirements of SFAS 165 to
interim or annual financial periods ending after June 15, 2009. The Company
is in the process of evaluating the new disclosure requirements under SFAS
165.
  9
 2.
              ACCOUNT
      RECEIVABLE
 
 During
the fourth quarter of 2008, due to adverse market conditions for home and
commercial renovation and decoration, the Company’s accounts receivable
outstanding for over half year increased promptly to the amounts of $1,551,836
(equivalent to RMB10,587,400) as of December 31, 2008. Commencing April, 2009,
since adverse market conditions were eliminated gradually, total revenues and
accounts receivable outstanding of the Company increased significantly during
the second quarter 2009. As of June 30, 2009, the accounts receivable
outstanding was valued at $5,738,937 (equivalent to RMB 39,200,898). Due to
concern about certain accounts receivable, Hanxin adopted a bad debt allowance
at 0.5% of the principal amount that account receivable. Accordingly, the bad
debt allowance was $28,290, and the net amount of accounts receivable was
$5,710,647 as of June 30, 2009. Due to adverse effect in the prior period, the
Company’s accounts receivable outstanding for over half year increased to
$3,333,692 (equivalent to RMB22,771,419) as of June 30, 2009.
  3.
              INVENTORIES
 
 Inventories
as of June 30, 2009 and December 31, 2008, consisted of the
following:
 
 June
      30, 2009
                
                
                December
      31, 2008(Unaudited)
                
                
                (Audited)Raw
      materials
                
                $
                1,713,118
                
                
                $
                2,073,501Work
      in process
                
                
                168,033
                
                
                
                210,526Finished
      goods
                
                
                215,564
                
                
                
                427,459Packaging
      and other
                
                
                19,813
                
                
                
                44,525Total
                
                $
                2,116,528
                
                
                $
                2,756,011
 4.
              LOAN
      TO UNRELATED PARTY
 
 Hanxin
had prepaid RMB10 million as deposits to purchase the land use right from one of
its major sales distributors in Shaanxi Province, Shaanxi Shuta Wood Products
Co., Ltd. (“Shaanxi Shuta”). However, Hanxin terminated the agreement in August
2008 and had all deposits refunded in August and September 2008.
 
 In 2008,
Shaanxi Shuta opened cork retail chain stories dedicated to sell Hanxin’s
products exclusively. Shaanxi Shuta incurred heavy losses because Hanxin could
not achieve its 500,000 square meters floor and board production plan in 2008
and had delayed many purchase orders. In order to avoid losing a very important
distribution channel and to assist Shaanxi Shuta to recover from this situation,
Hanxin loaned RMB10 million (equivalent to $1,463,981) to Shaanxi Shuta for one
year starting from October 27, 2008. This loan is non-interest bearing and
unsecured.
  10
  5.
              PROPERTY
      AND EQUIPMENT
 
 As of
June 30, 2009 and December 31, 2008, property and equipment consisted of the
following:
 
 June
      30, 2009
                
                
                December
      31, 2008Estimated
      Life
                
                
                (Unaudited)
                
                
                (Audited)Building
      and improvement
                
                
                27-35
                
                
                $
                4,889,076
                
                
                $
                4,894,945Manufacturing
      equipment
                
                
                1-8
                
                
                
                837,761
                
                
                
                838,766Office
      furniture and equipment
                
                
                5
                
                
                
                31,104
                
                
                
                31,141Vehicle
                
                
                2-8
                
                
                
                12,512
                
                
                
                12,527Machinery
      improvement
                
                
                3
                
                
                
                80,518
                
                
                
                80,616Subtotal
                
                
                
                
                
                
                5,850,971
                
                
                
                5,857,995Less:
      Accumulated depreciation
                
                
                
                1,189,956
                
                
                
                1,044,366Total
                
                
                
                
                
                $
                4,661,015
                
                
                $
                4,813,629
 For the
six months ended June 30, 2009 and 2008, depreciation expenses amounted to
$146,791 and $114,960, respectively.
  6.
              DEPOSIT
      FOR PURCHASE OF FIXED ASSETS
  Hanxin
intended to purchase a factory’s fixed assets through an unrelated agent who
will do the negotiation for the Company, and both parties signed the Entrust
Purchase Agreement on November 10, 2005. Hanxin had paid deposits $2,020,294
(equivalent to RMB 13,800,000) to the agent as of June 30, 2009, and the same
deposit was valued at $2,022,719 (equivalent to RMB 13,800,000) as of December
31, 2008. The agency agreement has no firm commitment on the purchase but it
states a maximum price of RMB 50,000,000 that the Company is willing to pay for
the fixed assets. The deposit is fully refundable if the purchase does not close
by June 30, 2010.
  7.
              DEPOSIT
      FOR ACQUISITION
  Hanxin
intended to acquire Sichuan Hanxin Cork Merchandises Co, Ltd. (“Sichuan Hanxin
”), one of its cork raw material providers located in Sichuan Province China,
and signed a strategic cooperation agreement with Sichuan Hanxin on March 26,
2007. The purchase price of Sichuan Hanxin shall not exceed $2,927,962 (RMB20
million) based upon the agreement. As of June 30, 2009, Hanxin had paid a
$1,463,981 (equivalent to RMB10 millions) deposit to Sichuan Hanxin. Hanxin
anticipates applying the whole deposited amount to payments for raw materials if
the acquisition does not occur.
  11
 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
$2,049,573 (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
 
 The
Company purchased the right to use a parcel of land for 40 years on September
27, 2001. 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. Fangshe 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 were $4,199 (equivalent to RMB28,800). As of June 30, 2009
and December 31, 2008, intangible assets, less accumulated amortization
consisted of the following:
  June
      30, 2009
                
                
                December
      31, 2008(Unaudited)
                
                
                (Audited)Intangible
      assets
                
                $
                208,082
                
                
                $
                208,332Less:
      Accumulated amortization
                
                
                39,816
                
                
                
                37,154Total
                
                $
                168,266
                
                
                $
                171,178
 
 For the
six months ended June 30, 2009 and 2008, amortization expense amounted to $2,706
and $2,466 respectively.
 
 The
amortization expenses for the next five years are as follows:
 
 2010
              
              $
              5,4122011
              
              
              5,4122012
              
              
              5,4122013
              
              
              5,4122014
              
              
              5,412
 
 10. LOAN
PAYABLE
 
 Loan
payable as of June 20, 2009 and December 31, 2008 consisted of the
following:
 
 12
  June
      30, 2009
                
                
                December
      31, 2008(Unaudited)
                
                
                (Audited)On
      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‰ per 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 $439,722 ) from the same
      bank with new interest rate 9.967‰ per month and new due date on June 30,
      2009 . This RMB3 million loan had been fully paid off on June 29,
      2009.
                
                
                -
                
                
                $
                439,722Total
      Loan Payable
                
                $
                -
                
                
                $
                439,722
 11.  
CONVERTIBLE NOTES AND WARRANTS
       
 The
Company’s obligations under the promissory notes are secured by an aggregate of
7,630,814 shares of common stock pledged by Mr. Pengcheng Chen, the Company’s
Chief Executive Officer, Mr. Fangshe Zhang, the Company’s Chairman (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 agreed to 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.
    June
      30, 2009
                
                
                December
      31, 2008(Unaudited)
                
                
                (Audited)Convertible
      note
                
                $
                700,000
                
                
                $
                700,000Less:
      Discount on convertible note
                
                
                -
                
                
                
                125,724Convertible
      note, net
                
                $
                700,000
                
                
                $
                574,276
 12.  TAX
PAYABLE
 13
  Asia Cork
and its U. S. subsidiary will file consolidated Federal income tax and
individually file state franchise tax annual report with the State of Delaware.
Its PRC subsidiaries file income tax returns under the Income Tax Law of the PRC
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 of existence, and then receives a 50% exemption of income
tax for the next three years if it is a non high-tech corporation or 15% tax
rate for corporation qualified by State Science and Technology Commission as
"High Tech Manufacturing Enterprise" located in State "High Tech Zone" approved
by China State Council. Hanxin is qualified as a High Tech Manufacturing
Enterprise. Based on this regulation, Hanxin was exempt from income tax in year
2003 and 2004 and its income has been subject to a 15% tax starting from January
1, 2005. CIE is not “High Tech Manufacturing Enterprise”, thus its income is
subject to 33% tax rate. Commencing from January 2008, based on the new
regulation in the PRC, CIE’s income is subject to 25% tax rate.
  On June
30, 2009 and December 31, 2008, taxes payable consisted the
following:
  June
      30, 2009
                
                
                December
      31, 2008(Unaudited)
                
                
                (Audited)Value-added
      tax
                
                $
                401,074
                
                
                $
                177,287Corporate
      income tax provision
                
                
                119,912
                
                
                
                74,888Local
      taxes and surcharges
                
                
                29,198
                
                
                
                13,491Franchise
      tax
                
                
                22,058
                
                
                
                9,558Total
                
                $
                572,242
                
                
                $
                275,224
 The
deferred income tax assets results from loss on disposition of fixed assets that
are not deductible.
 
 The
components of the provisions for income taxes were as follows:
  For
      Six Months Ended June 30,2009
                
                
                2008(Unaudited)
                
                
                (Audited)Current
      taxes:Current
      income taxes in P.R. China
                
                $
                179,604
                
                
                $
                227,911Deferred
      taxes valuation allowance
                
                
                3,596
                
                
                
                -Total
      provision for income taxes
                
                $
                183,200
                
                
                $
                227,911
 13.  DUE
TO STOCKHOLDERS/OFFICERS
 
 Amounts
due to stockholders/officers are unsecured, non-interest bearing, and have not
set repayment date. As of June 30, 2009 and December 31, 2008, the total net
amounts due to the stockholders/officers were $177,486 and $177,699,
respectively, which represented the net amounts lent by stockholders/officers to
the Company.
 
 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 As a result the total amount of issued and outstanding shares of
the Company’s common stock was 35,413,850 as of June 30, 2008.
 
 14
 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 August 15,
2009.
 
 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 were 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 June 30, 2008.
 
     For
      Three Months Ended June 30,
                
                
                For
      Six Months Ended June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Unaudited
                
                
                Unaudited
                
                
                Unaudited
                
                
                UnauditedBasic:Numerator:Net
      income for basic calculation
                
                $
                854,992
                
                
                $
                743,647
                
                
                $
                741,451
                
                
                $
                1,133,829Denominator:Weighted
      average common shares
                
                
                35,663,850
                
                
                
                35,413,850
                
                
                
                35,663,850
                
                
                
                35,413,850Denominator
      for basic calculation
                
                
                35,663,850
                
                
                
                35,413,850
                
                
                
                35,663,850
                
                
                
                35,413,850Net
      income per share — basic
                
                $
                0.02
                
                
                $
                0.02
                
                
                $
                0.02
                
                
                $
                0.03Diluted:Numerator:Net
      income for basic calculation
                
                $
                854,992
                
                
                $
                743,647
                
                
                $
                741,451
                
                
                $
                1,133,829Effect
      of dilutive securities issued
                
                
                86,576
                
                
                
                20,735
                
                
                
                184,605
                
                
                
                20,735Net
      income for diluted calculation
                
                $
                941,568
                
                
                $
                764,382
                
                
                $
                926,056
                
                
                $
                1,154,564Denominator:Denominator
      for basic calculation
                
                
                35,663,850
                
                
                
                35,413,850
                
                
                
                35,663,850
                
                
                
                35,413,850Weighted
      average effect of dilutive securities:Warrants
                
                
                -
                
                
                
                554,484
                
                
                
                -
                
                
                
                554,484Convertible
      debt
                
                
                3,070,175
                
                
                
                750,488
                
                
                
                3,070,175
                
                
                
                375,244Denominator
      for diluted calculation
                
                
                38,734,025
                
                
                
                36,718,822
                
                
                
                38,734,025
                
                
                
                36,343,578Net
      income per share — diluted
                
                $
                0.02
                
                
                $
                0.02
                
                
                $
                0.02
                
                
                $
                0.03
  15
 16.  COMMITMENTS
 
 The
Company leases its office space and production land under operating lease
agreements that are expiring on December 31, 2009 and October, 2047
respectively. The following is a schedule of future minimum rental land payments
required under these operating leases as of June 30, 2009.
  For
      Six Months Ending June 30,
                
                Amount2010
                
                $
                49,4992011
                
                
                17,5682012
                
                
                17,5682013
                
                
                17,5682014
                
                
                17,568Thereafter
                
                
                585,592Total
      minimum rental payments required
                
                $
                705,363
 Rent and
properties maintenance expenses amounted to $58,283 and $85,615 for the six months ended
June 30, 2009 and 2008, 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 as of June 30, 2009.
  For
      Six Months Ending June 30,
                
                Amount2010
                
                $
                351,3552011
                
                
                279,132Total
      minimum rental payments required
                
                $
                630,487
 Patent
lease expenses amounted to $175,678 and $167,546 for the six months
ended June 30, 2009 and 2008, 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.
 
 16
 17.  CONCENTRATIONS
OF BUSINESS AND CREDIT RISK
 
 Financial
Risks:
 
 The
Company provides credit in the normal course of business. The Company performs
ongoing credit evaluations of its customers and maintains allowances for
doubtful accounts based on factors surrounding the credit risk of specific
customers, historical trends, and other information.
 
 Concentrations
Risks:
 
 For the
six months ended June 30, 20009 and 2008, none of the Company’s customers
accounted for more than 10% of its sales.
 
 Major
Suppliers:
 
 The
Following summaries purchases of raw materials from major suppliers (each 10% or
more of purchases):
 
 Purchases
      from
                
                
                Number
      of
                
                
                PercentageFor
      Six Months Ended June 30,
                
                Major
      Suppliers
                
                
                Suppliers
                
                
                of
      Total2009
                
                $
                1,991,743
                
                
                
                4
                
                
                
                56.73
                %2008
                
                $
                2,343,356
                
                
                
                3
                
                
                
                35.94
                %
 Geographical
Risks:
 
 Substantially
all of the Company’s assets and operations were in the PRC for the six months
ended June 30, 2009 and 2008. Accordingly, the Company’s business, financial
condition and results of operations may be influenced by the political, economic
and legal environment in PRC, and by the general state of the economy of PRC.
The Company’s operations in PRC are subject to special considerations and
significant risks not typically associated with companies in the United States.
These include risks associated with, among others, the political, economic and
legal environments and foreign currency exchange. The Company's results may be
adversely affected by, among other things, changes in the political, economic
and social conditions in PRC, and by changes in governmental policies with
respect to laws and regulations, changes in PRC's cork manufacture industry and
regulatory rules and policies, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation.
 
 17
 18.  SUBSEQUENT
EVENT
 
 On August
6, 2009, the Company engaged Global Arena Capital Corp. (“GAC”), for the period
through May 31st, 2010, which period may be extended by mutual consent, to act
as the Company's exclusive financial advisor.
 
 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 three and six months ended June 30, 2009 and 2008, should be
read in conjunction with the consolidated financial statements, including
footnotes, and other information presented in our annual report on Form 10-K as
filed with the Securities and Exchange Commission on April 16,
2009.
 Overview
  The
Company was incorporated under the laws of the State of Delaware on August 1,
1996. The Company was formed in connection with the merger acquisition of Kushi
Macrobiotics Corp. (“KMC”) with American Phoenix Group, Inc. (“APGI”) in 1996.
Prior to such acquisition, KMC had operated a business of marketing a line of
natural foods (the “Kushi Cuisine”). This business was not successful and
management determined that it would be in the shareholder’s interest for KMC to
operate a different business. In August 2005, the Company, through Kushi Sub,
Inc., a newly formed Delaware corporation and wholly-owned subsidiary of the
Company ("Acquisition Sub") acquired all the ownership interest in Hanxin (Cork)
International Holding Co., Ltd. ("Hanxin International"), a British Virgin
Islands limited liability corporation, organized in September 2004. The Company
acquired Hanxin International in exchange for 24,000,000 shares of common stock
and 1,000 shares of the Series A Preferred Stock, which such shares converted
into 29,530,937 shares of common stock. Subsequent to the merger and upon the
conversion of the Series A Preferred Stock, the former shareholders of Hanxin
International currently own 95% of the outstanding shares of the Company's
common stock.
 
 Kushi
Sub, the surviving entity of the merger with Hanxin International, has no other
business activities other than owning 100% of Xi'An Cork Investments
Consultative Management Co., Ltd. ("Xi'An"), which owns 92% of Xian Hanxin
Technology Co., Ltd. ("Hanxin"), incorporated in July 2002, both Xi'An and
Hanxin are People's Republic of China (PRC) corporations. Most of the Company’s
operating and business activities are conducted through Hanxin.
 
 On July
11, 2008, the Company's wholly owned subsidiary, Asia Cork Inc. was merged into
its parent, the Company as approved by the Board of Directors of the Company
pursuant to the Delaware General Corporation Law. The Company is the surviving
company of the merger and Certificate of Incorporation is otherwise unchanged.
The wholly-owned subsidiary was formed in July 2008 and had no material assets.
The Certificate of Merger was filed with the Secretary of State of Delaware on
July 11, 2008.
 
 As
permitted by Delaware General Corporation Law, the Company assumed the name of
its wholly owned subsidiary following the merger and now operates under the name
Asia Cork Inc. The Company’s common stock is quoted on the Over the Counter
Bulletin Board under the trading symbol “AKRK.OB.”
 Business
Overview
 
 The
Company, through its subsidiaries, engages in developing, manufacturing and
marketing of cork wood floor, wall and decorating products.
 
 18
 Hanxin is
the manufacturing subsidiary that produces cork-building material sold under the
Hanxin brand name and on a private label basis. Approximately 70% of Hanxin's
products sold in 2009 were to customers in foreign countries, among which
approximately 30% sold through unrelated export distributors under their private
label, and around 40% sold to other domestic cork product manufacturers who
reprocess our products and sell the end products to overseas markets under their
private label. The rest 30% are sold to customers in China by our own sales
persons, and domestic distributors and agents. Our Chairman who is also a
principal shareholder owns several cork processing technology related patents in
China. The Company has the right to use 17 patents, including three which
Mr. Zhang has assigned to Hanxin in year 2008.
  Foreign
Exchange Considerations
 
 Even
though we are a U.S. company, because all of our operations are located in the
PRC, we face certain risks associated with doing business in that country. These
risks include risks associated with the ongoing transition from state business
ownership to privatization, operating in a cash-based economy, dealing with
inconsistent government policies, unexpected changes in regulatory requirements,
export restrictions, tariffs and other trade barriers, challenges in staffing
and managing operations in a communist country, differences in technology
standards, employment laws and business practices, longer payment cycles and
problems in collecting accounts receivable, changes in currency exchange rates
and currency exchange controls. We are unable to control the vast majority of
these risks associated both with our operations and the country in which they
are located and these risks could result in significant declines in our
revenues.
 
 Because
revenues from our operations in the PRC accounted for 100% of our consolidated
net revenues, how we report net revenues from our PRC-based operations is of
particular importance to understanding our financial statements. Transactions
and balances originally denominated in U.S. dollars are presented at their
original amounts. Transactions and balances in other currencies are converted
into U.S. dollars in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52, "Foreign Currency Translation," and are included in determining
comprehensive net income or loss. For foreign operations with the local currency
as the functional currency, assets and liabilities are translated from the local
currencies into U.S. dollars. Translation adjustments resulting from the process
of translating the local currency financial statements into U.S. dollars are
included in determining comprehensive income or loss.
 
 The
functional currency of our Chinese subsidiaries is the Chinese RMB, the local
currency. The financial statements of the subsidiaries are translated to U.S.
dollars using year-end rates of exchange for assets and liabilities, and average
rates of exchange for the period for revenues, costs, and expenses. Net gains
and losses resulting from foreign exchange transactions are included in the
consolidated statements of operations and were not material during the periods
presented. Until 1994, the RMB experienced a gradual but significant devaluation
against most major currencies, including U.S. dollars, and there was a
significant devaluation of the RMB on January 1, 1994 in connection with the
replacement of the dual exchange rate system with a unified managed floating
rate foreign exchange system. Since 1994, the value of the RMB relative to the
U.S. Dollar has remained stable and has appreciated slightly against the U.S.
dollar. Countries, including the United States, have argued that the RMB is
artificially undervalued due to China's current monetary policies and have
pressured China to allow the RMB to float freely in world markets.
 
 19
 On July
21, 2005, the PRC reported that it would have its currency pegged to a basket of
currencies rather than just tied to a fixed exchange rate to the dollar. It also
increased the value of its currency 2% higher against the dollar, effective
immediately. If any devaluation of the RMB were to occur in the future, returns
on our operations in China, which are expected to be in the form of RMB, will be
negatively affected upon conversion to U.S. dollars. Although we attempt to have
most future payments, mainly repayments of loans and capital contributions,
denominated in U.S. dollars, if any increase in the value of the RMB were to
occur in the future, our product sales in China and in other countries may be
negatively affected.
 
 Critical
Accounting Policies
 
 The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
 
 A summary
of significant accounting policies is included in Note 1 to the consolidated
financial statements. Management believes that the application of these policies
on a consistent basis enables us to provide useful and reliable financial
information about our operating results and financial condition
 
 The
Company records property and equipment at cost. Depreciation is provided using
the straight-line method over the estimated economic lives of the assets, which
are from 2 to 35 years. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. We review the
carrying value of long-lived assets for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of long-lived assets is measured by
comparison of its carrying amount to the undiscounted cash flows that the asset
or asset group is expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property, if any, exceeds its fair market
value.
 
 The
Company's revenues from the sale of products are recognized when the goods are
shipped, title passes, the sales price to the customer is fixed and
collectability is reasonably assured. Persuasive evidence of an arrangement is
demonstrated via purchase order from customer, product delivery is evidenced by
warehouse shipping log as well as bill of lading from the trucking company and
no product return is allowed except defective or damaged products, the sales
price to the customer is fixed upon acceptance of purchase order, there is no
separate sales rebate, discounts, and volume incentives.
 
 20
 RESULTS OF
OPERATIONS
 
 THREE
MONTHS ENDED JUNE 30, 2009 COMPARED TO THREE MONTHS ENDED JUNE 30,
2008
  For
      Three Months Ended June 30,2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Decrease)/
      IncreaseRevenues
                
                $
                6,003,271
                
                
                $
                6,366,384
                
                
                $
                (363,113
                )
                
                
                -5.70
                %Cost
      of Goods Sold
                
                
                3,861,118
                
                
                
                4,173,021
                
                
                
                (311,903
                )
                
                
                -7.47
                %Gross
      Profit
                
                
                2,142,153
                
                
                
                2,193,363
                
                
                
                (51,210
                )
                
                
                -2.33
                %Gross
      Profit Percentage
                
                
                35.68
                %
                
                
                34.45
                %Operating
      ExpensesSelling
      expenses
                
                
                794,478
                
                
                
                832,792
                
                
                
                (38,314
                )
                
                
                -4.60
                %General
      and administrative expense
                
                
                158,153
                
                
                
                342,888
                
                
                
                (184,735
                )
                
                
                -53.88
                %Total
      Operating Expenses
                
                
                952,631
                
                
                
                1,175,680
                
                
                
                (223,049
                )
                
                
                -18.97
                %Income
      From Operations
                
                
                1,189,522
                
                
                
                1,017,683
                
                
                
                171,839
                
                
                
                16.89
                %Other
      Income (Expense)Interest
      expense, net
                
                
                (102,981
                )
                
                
                (33,804
                )
                
                
                (69,177
                )
                
                
                204.64
                %Other
      income (expense), net
                
                
                27,775
                
                
                
                (29,177
                )
                
                
                56,952
                
                
                
                -195.19
                %Total
      Other Expense
                
                
                (75,206
                )
                
                
                (62,981
                )
                
                
                (12,225
                )
                
                
                19.41
                %Income
      Before Taxes
                
                
                1,114,316
                
                
                
                954,702
                
                
                
                159,614
                
                
                
                16.72
                %Income
      Tax Provision
                
                
                180,376
                
                
                
                151,120
                
                
                
                29,256
                
                
                
                19.36
                %Income
      Before Noncontrolling Interest
                
                
                933,940
                
                
                
                803,582
                
                
                
                130,358
                
                
                
                16.22
                %Less:
      Net income attributable to the noncontrolling interest
                
                
                78,948
                
                
                
                59,935
                
                
                
                19,013
                
                
                
                31.72
                %Net
      Income Attributable to Asia Cork Inc.
                
                $
                854,992
                
                
                $
                743,647
                
                
                $
                111,345
                
                
                
                14.97
                %
 
 Revenues
 
 Entering
the second quarter of 2009, our business gradually revived as the market
recovered. For the three months ended June 30, 2009, our revenues were
$6,003,271 as compared to $6,366,384 for the three months ended June 30, 2008, a
decrease of $363,113 or 5.70%. The reason for the decrease is primarily due to
the fact that adverse market condition for home and commercial renovation has
been significantly adversely affected since the fourth quarter of 2008. However,
as our revenue during the second quarter of 2009 accounted for 87% of our
revenue during the first six months of 2009, we expect a continued revival of
our business and growth in our revenue during the balance of 2009.
 
 Cost
of Sales and Gross Profit
 
 For the
three months ended June 30, 2009, cost of sales amounted to $3,861,118 or 64.32%
of net revenues as compared to cost of sales of $4,173,021 or 65.55% of net
revenues for the three months ended June 30, 2008. Gross profit for the three
months ended June 30, 2009 was $2,142,153 or 35.68% of revenues, as compared to
$2,193,363 or 34.45% of revenues for the three months ended June 30, 2008. The
gross margin increased mainly as a result of slightly reduced manufacture costs
in the second quarter of 2009, compared to the same quarter of
2008.
 
 21
 Operating
Expenses
 
 
 
 Other
Income (expense)
 
 During
the three months ended June 30, 2009, we realized $27,775 of net other income,
as compared to the net other expense of ($29,177) during the same period of
2008, an increase of $56,952 or 195.19%. The increase in the item of net other
income is due to the rental income we realized from the rental of our
entertainment facility. This rental income was offset by the franchise taxes
accrued for the State of Delaware and the donation contribution made by the
Company during the three months ended June 30, 2008 in the amount of $71,822 in
connection with the earthquake in Sichuan province of PRC.
 
  
 Income
Tax
 
  
 Net
Income
 
  
 22
 SIX
MONTHS ENDED JUNE 30, 2009 COMPARED TO SIX MONTHS ENDED JUNE 30,
2008
  For
      Six Months Ended June 30,2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Decrease)/
      IncreaseRevenues
                
                $
                6,905,775
                
                
                $
                8,882,729
                
                
                $
                (1,976,954
                )
                
                
                -22.26
                %Cost
      of Goods Sold
                
                
                4,550,705
                
                
                
                5,856,120
                
                
                
                (1,305,415
                )
                
                
                -22.29
                %Gross
      Profit
                
                
                2,355,070
                
                
                
                3,026,609
                
                
                
                (671,539
                )
                
                
                -22.19
                %Gross
      Profit Percentage
                
                
                34.10
                %
                
                
                34.07
                %Operating
      ExpensesSelling
      expenses
                
                
                919,643
                
                
                
                1,112,086
                
                
                
                (192,443
                )
                
                
                -17.30
                %General
      and administrative expense
                
                
                272,435
                
                
                
                416,357
                
                
                
                (143,922
                )
                
                
                -34.57
                %Total
      Operating Expenses
                
                
                1,192,078
                
                
                
                1,528,443
                
                
                
                (336,365
                )
                
                
                -22.01
                %Income
      From Operations
                
                
                1,162,992
                
                
                
                1,498,166
                
                
                
                (335,174
                )
                
                
                -22.37
                %Other
      Income (Expense)Interest
      expense, net
                
                
                (217,365
                )
                
                
                (46,357
                )
                
                
                (171,008
                )
                
                
                368.89
                %Other
      income, net
                
                
                52,500
                
                
                
                4,966
                
                
                
                47,534
                
                
                
                957.19
                %Total
      Other Expense
                
                
                (164,865
                )
                
                
                (41,391
                )
                
                
                (123,474
                )
                
                
                298.31
                %Income
      Before Taxes
                
                
                998,127
                
                
                
                1,456,775
                
                
                
                (458,648
                )
                
                
                -31.48
                %Income
      Tax Provision
                
                
                183,200
                
                
                
                227,911
                
                
                
                (44,711
                )
                
                
                -19.62
                %Income
      Before Noncontrolling Interest
                
                
                814,927
                
                
                
                1,228,864
                
                
                
                (413,937
                )
                
                
                -33.68
                %Less:
      Net income attributable to the noncontrolling interest
                
                
                73,476
                
                
                
                95,035
                
                
                
                (21,559
                )
                
                
                -22.69
                %Net
      Income Attributable to Asia Cork Inc.
                
                $
                741,451
                
                
                $
                1,133,829
                
                
                $
                (392,378
                )
                
                
                -34.61
                %
 Revenues
 
 Our
business revived during the six months ended June 30, 2009, despite the
decreased revenue of $6,905,775 during the six months ended June 30, 2009,
compared to $8,882,729 during the six months ended June 30, 2008, .Our revenue
for the second quarter of 2009 was more than six times of the revenue during the
first quarter of 2009 as general market conditions improved.
 
 Cost
of Sales and Gross Profit
 
 For the
six months ended June 30, 2009, cost of sales amounted to $4,550,705 or 65.9% of
net revenues as compared to cost of sales of $5,856,120 or 65.93% of net
revenues for the six months ended June 30, 2008. Gross profit for the six months
ended June 30, 2009 was $2,355,070 or 34.1% of revenues, as compared to
$3,026,609 or 34.07% of revenues for the six months ended June 30, 2008. The
gross margin for the six months ended June 30, 2009 is almost same as the same
period of 2008.
 
 23
 Operating
Expenses
 
 
 
 Other
Income (expense)
 
 For the
six months ended June 30, 2009, other income, net, amounted to $52,500 as
compared to other income, net of $4,966 for the six months ended June 30, 2008,
an increase of $47,534 or 957.19%. Other income for the six months ended June
30, 2009 and 2008 is related to the income received from the rental of our
entertainment facility. This rental income was primarily offset by the franchise
tax accrued for the State of Delaware and the donation contribution made by the
Company during the three months ended June 30, 2008 in the amount of $71,822 and
which such donation was made in connection with the earthquake in Sichuan
PRC.
 
  
 Income
Tax
 
  Net
Income
  
 LIQUIDITY
AND CAPITAL RESOURCES
 
  
 24
  
  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. Since the
Financing did not occur within 12 months of the date 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 promissory notes are secured by Common Stock
pledged by Pengcheng Chen, our Chief Executive Officer and Fangshe Zhang, our
Chairman.  However, at the present time we do not have sufficient cash
or cash equivalents to repay the promissory notes should the investors demand
payment upon maturity. The Company is seeking an extension of the maturity dates
of the promissory notes and alternate financing, but there is no assurance the
extension or the alternate financing will be
obtained.
 
 On
November 10, 2005, the Company signed the Entrust Purchase Agreement to purchase
a factory’s fixed assets through an unrelated agent. The Company has paid
deposits of $2,020,294 (equivalent to RMB 13,800,000) to the agent as of June
30, 2009. The agency agreement has no firm commitment on the purchase but it
states a maximum price of RMB 50,000,000 that the Company is willing to pay for
the fixed assets. The deposit is fully refundable if the purchase does not close
by June 30, 2010.
 
 With
approximately $9.9 million of net working capital (total current assets less
total current liabilities) and positive cash inflow from operations as of June
30, 2009, we believe we will have sufficient resources to finance our operations
for the coming year.
 
 25
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
 
 Management's  Discussion  and  Analysis  of
Financial Condition and Plan of
Operations  discusses  the  Company's  financial  statements,  which  have  been
prepared  in  accordance  with  accounting  principles
generally accepted in the
United  States  of  America.  The  preparation  of  these  financial  statements
requires  management  to make estimates and assumptions that
affect the reported amounts  of  assets  and
liabilities at the date of the financial statements and
the  reported  amounts of revenues and expenses during the
reporting period.  On an on-going basis, management evaluates its
estimates and judgments, including those related to revenue recognition,
intangible assets, financing operations, and contingencies and
litigation.  Management bases its estimates and judgments
on  historical  experience  and on various other
factors that are believed to be
reasonable  under  the  circumstances,  the  results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not
readily  apparent  from  other  sources.  Actual
results may differ from these estimates under different assumptions or
conditions.  The  most significant
accounting  estimates  inherent  in  the  preparation
of the Company's financial
statements  include  estimates  as  to
the appropriate carrying value of certain
assets  and  liabilities  which  are  not  readily  apparent
from other sources,
primarily  allowance  for  doubtful accounts and
accruals for other liabilities. These  accounting policies are
described at relevant sections in this discussion and  analysis and in
the notes to the consolidated financial statements included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2008.
 
 INFLATION
 
 During
the period under review, inflation did not have a material impact on our
financial performance.
 
 Web Site
Access to Our Periodic SEC Reports
 
 You may
read and copy any public reports we filed with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E. Room 1580, Washington D.C.
20549.  You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1800-SEC-0330.  The SEC also
maintains an Internet site http://www.sec.gov
that contains reports and information statements, and other information we filed
electronically
 
 ITEM
      3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
  Not
applicable.
 
 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 year
ended December 31, 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.
 26
 
 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 of Equity Securities and Use of Proceeds.
  We have
not sold any equity securities during the six month period ended June 30,
2009.
  ITEM 3.
Defaults Upon Senior Securities
  There
were no defaults upon senior securities during the six month period ended on
June 30, 2009.
  ITEM 4.
Submission of Matters to a Vote of Security Holders
  No
matters were submitted to a vote of security holders during the six month period
ended on June 30, 2009.
  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
      of 2002.31.2
              
              Certification of the
      Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002.32.1
              
              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.
   27