UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549




FORM
10-Q /A




þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
              
              OF 1934
      for the quarterly period ended September 30, 2009o
            TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
              
              OF 1934
      for the transition period from ______to
  _________.





Commission
file number: 000-30115






ASIA CORK
      INC.(Exact name of
      registrant as specified in its charter)  Delaware
              
              13-3912047(State
      or Other Jurisdiction
                of
      Incorporation)
              
              (I.R.S.
      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 Office) (Zip Code)(011)
      86-13301996766(Registrant’s
      telephone number, including area code)




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  þNo  ̈




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  þNo  ̈




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  ̈
              Accelerated filer
       ̈
              Non-accelerated
      filer Yes  þNo  ̈
              Smaller 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  ̈  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 November 13, 2009 there were 35,663,850
shares of Common Stock, par value $.0001 per share, outstanding.




This amendment is being filed to revise the disclosure
regarding the effect of the issuance of common stock purchase warrants as part
of a financing by the Company in June 2008.
 ASIA CORK
INC.
 FORM 10-Q /A QUARTERLY PERIOD ENDED SEPTEMBER 30,
2009
   INDEX
    PagePART
      I - FINANCIAL INFORMATIONITEM 1
              Financial
      Statements
              1ITEM 2
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              21ITEM 3
              Quantitative and
      Qualitative Disclosures about Market Risk
              30ITEM 4
              Controls and
      Procedures
              30PART II - OTHER
      INFORMATIONITEM 1
              Legal
      Proceedings
              31ITEM 1A
              Risk
    Factors
              31ITEM 2
              Unregistered Sales
      of Equity Securities and Use of Proceeds
              31ITEM 3
              Default upon Senior
      Securities
              31ITEM 4
              Submission of
      Matters to a Vote of Security Holders
              31ITEM 5
              Other
      Information
              31ITEM 6
              Exhibits
              31
 
 
 PART
I
 
 Financial
Information
 ITEM 1. FINANCIAL STATEMENTS
  Asia
Cork Inc. and Subsidiaries
 Condensed
Consolidated Balance Sheets
  September
      30, 2009
                
                
                December
      31, 2008(Unaudited)
                
                
                (Audited)Assets:Current
      AssetsCash
      and equivalents
                
                $
                543,758
                
                
                $
                23,605Accounts
      receivable, net of allowance for doubtful accounts of $277,100 and
      $23,787, respectively
                
                
                5,322,765
                
                
                
                4,956,005Inventories
                
                
                7,308,113
                
                
                
                2,756,011Advance
      to suppliers
                
                
                802,061
                
                
                
                2,562,357Loan
      to unrelated party
                
                
                -
                
                
                
                1,465,738Deferred
      income tax assets
                
                
                4,935
                
                
                
                7,757Prepayments
      and other current assets
                
                
                314,044
                
                
                
                34,718Total
      Current Assets
                
                
                14,295,676
                
                
                
                11,806,191Property
      and Equipment - Net
                
                
                5,403,222
                
                
                
                4,813,629Deposit
      for Purchase of Fixed Assets
                
                
                2,021,584
                
                
                
                2,022,719Deposit
      for Acquisition
                
                
                1,362,372
                
                
                
                1,465,738Loan
      to Unrelated Party
                
                
                1,464,916
                
                
                
                -Investment
      - At Cost
                
                
                2,050,882
                
                
                
                2,052,034Intangible
      Assets- Net
                
                
                167,019
                
                
                
                171,178Deferred
      Income Tax Assets
                
                
                14,064
                
                
                
                16,586Total
      Assets
                
                
                26,779,735
                
                
                
                22,348,075Liabilities
      and Equity:Liabilities:Current
      LiabilitiesAccounts
      payable and accrued expenses
                
                
                2,344,810
                
                
                
                1,395,366Loan
      payable
                
                
                215,343
                
                
                
                439,722Convertible
      note, net
                
                
                700,000
                
                
                
                574,276Customer
      deposit
                
                
                609,831
                
                
                
                10,118Taxes
      payable
                
                
                1,126,816
                
                
                
                275,224Due
      to stockholders/officers
                
                
                177,600
                
                
                
                177,699Other
      current liabilities
                
                
                28,777
                
                
                
                33,027Total
      Current Liabilities
                
                
                5,203,177
                
                
                
                2,905,432Total
      Liabilities
                
                
                5,203,177
                
                
                
                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
                
                
                2,586,720
                
                
                
                2,236,716Retained
      earnings
                
                
                9,580,690
                
                
                
                7,966,783Accumulated
      other comprehensive income
                
                
                2,659,538
                
                
                
                2,668,724Total
      Asia Cork Inc. Stockholders' Equity
                
                
                19,595,346
                
                
                
                17,640,621Noncontrolling
      Interest
                
                
                1,981,212
                
                
                
                1,802,022Total
      Equity
                
                
                21,576,558
                
                
                
                19,442,643Total
      Liabilities and Equity
                
                $
                26,779,735
                
                
                $
                22,348,075
 1
 Asia
Cork Inc. and Subsidiaries  Condensed
Consolidated Statements of Operations (Unaudited)
  For
      Three Months Ended September 30,
                
                
                For
      Nine Months Ended September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Revenues
                
                $
                10,151,002
                
                
                $
                8,958,570
                
                
                $
                17,056,777
                
                
                $
                17,841,299Cost
      of Goods Sold
                
                
                6,481,710
                
                
                
                5,810,298
                
                
                
                11,032,415
                
                
                
                11,666,418Gross
      Profit
                
                
                3,669,292
                
                
                
                3,148,272
                
                
                
                6,024,362
                
                
                
                6,174,881Operating
      ExpensesSelling
      expenses
                
                
                1,555,095
                
                
                
                1,146,051
                
                
                
                2,470,208
                
                
                
                2,255,551Bad
      debt expenses
                
                
                248,574
                
                
                
                6,466
                
                
                
                253,104
                
                
                
                9,052General
      and administrative expense
                
                
                228,127
                
                
                
                244,575
                
                
                
                500,562
                
                
                
                660,932Total
      Operating Expenses
                
                
                2,031,796
                
                
                
                1,397,092
                
                
                
                3,223,874
                
                
                
                2,925,535Income
      From Operations
                
                
                1,637,496
                
                
                
                1,751,180
                
                
                
                2,800,488
                
                
                
                3,249,346Other
      Income (Expenses)Interest
      expenses, net
                
                
                (41,752
                )
                
                
                (113,771
                )
                
                
                (259,117
                )
                
                
                (160,128
                )Other
      income , net
                
                
                26,260
                
                
                
                25,705
                
                
                
                78,760
                
                
                
                30,671Total
      Other Expenses
                
                
                (15,492
                )
                
                
                (88,066
                )
                
                
                (180,357
                )
                
                
                (129,457
                )Income
      Before Taxes
                
                
                1,622,004
                
                
                
                1,663,114
                
                
                
                2,620,131
                
                
                
                3,119,889Provision
      for Income Taxes
                
                
                293,830
                
                
                
                272,822
                
                
                
                477,030
                
                
                
                500,733Net
      Income Before Noncontrolling Interest
                
                
                1,328,174
                
                
                
                1,390,292
                
                
                
                2,143,101
                
                
                
                2,619,156Less:
      Net income attributable to the noncontrolling interest
                
                
                105,714
                
                
                
                119,887
                
                
                
                179,190
                
                
                
                214,922Net
      Income Attributable to Asia Cork Inc.
                
                $
                1,222,460
                
                
                $
                1,270,405
                
                
                $
                1,963,911
                
                
                $
                2,404,234Earnings
      Per Share:-
      Basic
                
                $
                0.03
                
                
                $
                0.04
                
                
                $
                0.06
                
                
                $
                0.07-
      Diluted:
                
                $
                0.03
                
                
                $
                0.04
                
                
                $
                0.06
                
                
                $
                0.07Weighted
      Common Shares Outstanding-
      Basic
                
                
                35,663,850
                
                
                
                35,564,961
                
                
                
                35,663,850
                
                
                
                35,464,220-
      Diluted:
                
                
                38,734,025
                
                
                
                38,795,991
                
                
                
                38,734,025
                
                
                
                36,985,851
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
 2
 Asia
Cork Inc. and Subsidiaries
 Notes
to Condensed Consolidated Financial Statements (Unaudited)
 
 For
      Nine Months Ended September 30,2009
              
              
              2008(Unaudited)
              
              
              (Unaudited)Net
      Income Before Noncontrolling Interest
              
              $
              2,143,101
              
              
              $
              2,619,156Other
      Comprehensive (Loss) Income:Foreign
      Currency Translation (Loss) Income
              
              
              (9,186
              )
              
              
              1,207,683Comprehensive
      Income
              
              $
              2,133,915
              
              
              $
              3,826,839
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
 3
 Asia
Cork Inc. and Subsidiaries
 Condensed
Consolidated Statements of Changes in Equity  (Unaudited)
 For Nine Months
Ended September 30, 2009 and the Year Ended December 31, 2008
 
 Asia
      Cork Inc. Stockholders' EquityRetained
      Earnings / (Accumulated Deficit)
                    
                    
                    Other
      Comprehensive Income (Expense)Common
      Stock,
                    
                    
                    Additional
      Paid-in Capital
                    
                    
                    Additional
      Paid-in Capital Stock Warrant
                    
                    
                    
                    
                    
                    Noncontrolling
      InterestNo.
      of Shares
                    
                    
                    Amount
                    
                    
                    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 convertible note withstock
      warrant in June, 2008
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    279,386
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    279,386Issued
      new common stocks onJuly
      31, 2008 for service received
                    
                    150,000
                    
                    
                    
                    15
                    
                    
                    
                    43,485
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    43,500Issued
      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 nine months ended September 30, 2009
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,963,911
                    
                    
                    
                    -
                    
                    
                    
                    179,190
                    
                    
                    
                    2,143,101Appropriation
      of Reserve funds
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    350,004
                    
                    
                    
                    (350,004
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Foreign
      currency translation loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    (9,186
                    )
                    
                    
                    
                    
                    
                    
                    (9,186
                    )Balance,
      September 30, 2009
                    
                    
                    35,663,850
                    
                    
                    $
                    3,566
                    
                    
                    $
                    4,485,446
                    
                    
                    $
                    279,386
                    
                    
                    $
                    2,586,720
                    
                    
                    $
                    9,580,690
                    
                    
                    $
                    2,659,538
                    
                    
                    $
                    1,981,212
                    
                    
                    $
                    21,576,558
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
 4
 Asia Cork Inc. and
Subsidiaries  Condensed
Consolidated Statements of Cash Flows  (Unaudited)
  For Nine Months Ended September
    30,2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)Cash
      Flows From Operating ActivitiesNet
      Income
                
                $
                1,963,911
                
                
                $
                2,404,234Adjustments
      to Reconcile Net Income to Net CashProvided
      by (Used in) Operating ActivitiesDepreciation
      and amortization
                
                
                223,137
                
                
                
                197,831Bad
      debt adjustment
                
                
                253,104
                
                
                
                9,052Issued
      common stock to payment legal fee
                
                
                -
                
                
                
                43,500Net
      income attributable to noncontrolling interest
                
                
                179,190
                
                
                
                214,922Accrued
      due to shareholder expenses
                
                
                -
                
                
                
                82,252Deferred
      income tax valuation allowance
                
                
                5,326
                
                
                
                -Consulting
      fee adjusted from deferred
                
                
                19,680
                
                
                
                11,480Interest
      expenses for discount on convertible note
                
                
                130,649
                
                
                
                83,816Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (623,217
                )
                
                
                (1,733,401
                )Inventories
                
                
                (4,556,205
                )
                
                
                (3,000,259
                )Advance
      to suppliers
                
                
                1,759,846
                
                
                
                (104,695
                )Prepayments
      and other current assets
                
                
                (299,182
                )
                
                
                (78,330
                )Accounts
      payable and accrued expenses
                
                
                950,760
                
                
                
                531,939Customer
      deposits
                
                
                600,055
                
                
                
                196,617Taxes
      payable
                
                
                852,225
                
                
                
                (140,584
                )Other
      current liabilities
                
                
                (4,234
                )
                
                
                4,346Net
      Cash Provided by (Used in) Operating Activities
                
                
                1,455,045
                
                
                
                (1,277,280
                )Cash
      Flows From Investing ActivitiesProceeds
      from withdraw deposit for purchase of intangible assets
                
                
                -
                
                
                
                1,370,877Proceeds
      from withdraw deposit for acquisition
                
                
                102,601
                
                
                
                -Payment
      for purchase of equipment
                
                
                (811,563
                )
                
                
                -Payment
      for construction in progress
                
                
                -
                
                
                
                (208,277
                )Net
      Cash (Used in) Provided by Investing Activities
                
                
                (708,962
                )
                
                
                1,162,600Cash
      Flows From Financing ActivitiesProceeds
      from the loan
                
                
                215,343
                
                
                
                441,833Repayments
      for the loan
                
                
                (439,475
                )
                
                
                (574,383
                )Proceeds
      from convertible note
                
                
                -
                
                
                
                700,000Net
      Cash (Used in) Provided  by Financing Activities
                
                
                (224,132
                )
                
                
                567,450Net
      Increase in Cash and Equivalents
                
                
                521,951
                
                
                
                452,770Effect
      of Exchange Rate Changes on Cash
                
                
                (1,798
                )
                
                
                (263,091
                )Cash
      and Equivalents at Beginning of Period
                
                
                23,605
                
                
                
                367,396Cash
      and Equivalents at End of Period
                
                $
                543,758
                
                
                $
                557,075SUPPLEMENT
      DISCLOSURES OF CASH FLOW INFORMATIONInterest
      paid
                
                $
                27,843
                
                
                $
                43,996Income
      taxes paid
                
                $
                134,505
                
                
                $
                719,287SUPPLEMENTAL
      SCHEDULE OF NON-CASH INVESTING ANDFINANCING
      ACTIVITIESConstruction
      in process transferred out to property
                
                $
                -
                
                
                $
                3,401,660Shareholder
      donated intangible assets into the Company without payment
                
                $
                -
                
                
                $
                4,199Issued
      common stock for legal fees and part of consulting fees
                
                $
                -
                
                
                $
                84,500
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  5
 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.
  7
  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.
  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 ASC740 – “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
  The Company
measures compensation expense for its non-employee stock-based compensation
under the FASB ASC 505-50, “Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. The fair value of the option issued
is used to measure the transaction, as this is more reliable than the fair value
of the services received. Fair value is measured as the value of the Company’s
common stock on the date that the commitment for performance by the counterparty
has been reached or the counterparty’s performance is complete. The fair
value of the equity instrument is charged directly to compensation expense and
additional paid-in capital.
  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 ASC 105, the FASB Accounting Standards
Codification 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 ASC 105, 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. ASC 105 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. Adoption of ASC 105 is not expected to have a material impact on the
Company’s results of operations or financial position.
  In
June 2009, the FASB issued ASC 810, Amendments to FASB Interpretation
No. 46(R), which improves financial reporting by enterprises involved with
variable interest entities. ASC 810 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. ASC 810 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 ASC 810 is not expected to have a
material impact on the Company’s results of operations or financial
position.
  In
May 2009, the FASB issued ASC 855, 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 ASC 855 to
interim or annual financial periods ending after June 15, 2009. Adoption of
ASC 855 did not have a material impact on the Company’s results of operations or
financial position.
  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 as at
December 31, 2008 of a total of $4,979,792 included accounts receivable
outstanding for over six months of $ 1,551,836
(equivalent to RMB 10,587,400). Commencing from
April 2009, market conditions gradually improved.  Total sales
for credit (other than cash sales) and accounts receivable outstanding increased
significantly during the second and third quarters of 2009. As of
September 30, 2009, the accounts receivable outstanding was valued at
$5,599,865 (equivalent to RMB 38,226,526), nearly none of which was outstanding
more than six months. However, for conservative concern ,
Hanxin adopted a bad debt allowance at 5% of all outstanding account receivable
commencing from the third quarter of 2009 .
Accordingly, the bad debt allowance was $277,100, and the net amount of accounts
receivable was $5,322,765 as of September 30, 2009.
  3.
                INVENTORIES
  Inventories
as of September 30, 2009 and December 31, 2008, consisted of the
following:
  September
      30,
                  2009
                
                
                December
      31,
                  2008(Unaudited)
                
                
                (Audited)Raw
      materials
                
                $
                6,175,564
                
                
                $
                2,073,501Work
      in progress
                
                
                182,612
                
                
                
                210,526Finished
      goods
                
                
                664,593
                
                
                
                427,459Packaging
      and other
                
                
                285,344
                
                
                
                44,525Total
                
                $
                7,308,113
                
                
                $
                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 $1,464,916) to Shaanxi Shuta for
one year starting from October 27, 2008. This loan is non-interest bearing
and unsecured. On October 28, 2009, Hanxin signed a nother loan agreement with Shaanxi Shuta and loaned the
same amount of RMB10 million to Shaanxi Shuta again for the term from
October 27, 2009 to October 27, 2011. This loan is also non-interest
bearing and unsecured.
  10
 
 On
October 20, 2009, Hanxin also signed a forgiveness memo with Shaanxi Shuta
to express its sincerity to acquire 7,000 Mu (equal to
4,669,000 square meters) land use right located in Baoji District Shaanxi Providence from Shaanxi
Shuta within two years starting from October 20, 2009. In consider of the
expenditure of Shaanxi Shuta in acquired the land use right for Hanxin, Hanxin
agree to purchase this land use right within two
years in the same amount of RMB37.8 million listed in prior agreement.
In the event that Hanxin does not purchase the land by
October 20, 2011 , Hanxin will be liable to
pay Shaanxi Shuta all upfront operation costs approximately
RMB10 million (equivalent to $1,464,916) that Shaanxi Shuta had paid to
acquire the land use right from the Baoji District government. The parties anticipate that should Hanxin does not purchase the
land by October 20, 2011, Shaanxi Shuta will not repay the RMB10 million
loan pursuant to Loan Agreement dated October 28, 2009 and the parties will have
no further obligation to each other regarding the loan or the land
purchase.
 
 5.
                PROPERTY
      AND EQUIPMENT
  As of
September 30, 2009 and December 31, 2008, property and equipment
consisted of the following:
  Estimated
                
                
                September
      30,
                  2009
                
                
                December
      31,
                  2008Life
                
                
                (Unaudited)
                
                
                (Audited)Building
      and improvement
                
                
                27-35
                
                
                $
                4,892,199
                
                
                $
                4,894,945Manufacturing
      equipment
                
                
                1-8
                
                
                
                1,649,859
                
                
                
                838,766Office
      furniture and equipment
                
                
                5
                
                
                
                31,124
                
                
                
                31,141Vehicle
                
                
                2-8
                
                
                
                12,520
                
                
                
                12,527Machinery
      improvement
                
                
                3
                
                
                
                80,570
                
                
                
                80,616Subtotal
                
                
                
                
                
                
                6,666,272
                
                
                
                5,857,995Less:
      Accumulated depreciation
                
                
                
                1,263,050
                
                
                
                1,044,366Total
                
                
                
                
                
                $
                5,403,222
                
                
                $
                4,813,629
 
 For the
nine months ended September 30, 2009 and 2008, depreciation expenses
amounted to $219,077 and $194,015, 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
$2,021,584 (equivalent to RMB 13,800,000) to the agent as of September 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. However, due to the
dissension within the factory’s creditors, the agent could not close this
purchase agreement on time. As a result, Hanxin had a supplementary agreement
with this agent on September 27, 2009 to postpone the term. Pursuant to the
supplementary agreement, the deposit which Hanxin had paid to the agent is fully
refundable if the purchase does not go through by June 30,
2010.
  11
  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
September 30, 2009, Hanxin had paid a $1,362,372 (equivalent to
RMB9.3 millions) deposit to Sichuan Hanxin .
Hanxin anticipates applying the whole deposited amount to payments for raw
materials if the acquisition does not occur.
  On September 20, 2009, Hanxin entered into an
agreement (“Agreement”) with the two shareholders of Sichuan Hanxin, Huadong Li
and Xiaojun Wu. The Agreement grants Hanxin an option to acquire 100% of the
shares of Sichuan Hanxin by September 20, 2010. The acquisition price shall be
the 120%~150% of the net asset value as shown in the audited financial
statements as of December 31, 2009 of Sichuan Hanxin as determined by an audit
firm Hanxin designate. The amount of the premium over the net asset value is
subject to agreement by the parties, but cannot exceed 150%. Exercise of the
option is subject to satisfactory of financing situation, due diligence, and
requisite corporate approvals. In the event that any of the closing condition is
not satisfied by September 20, 2010, the Agreement will terminate except that a
party whose fault causes the failure to fulfill conditions shall be liable to
pay a penalty of RMB 10 million (equivalent to $1,464,916). According to the
Agreement, Hanxin shall pay 30% of the acquisition price within 10 days from the
date of fulfillment of all closing conditions, 30% within 60 days from the
fulfillment date, and 40% within 10 days from completing the transfer of all
assets and shares of Sichuan Hanxin.  As of September 30, 2009,
Hanxin had paid a deposit of $1,362,372 (equivalent to RMB9.3 millions) to
Sichuan Hanxin. Hanxin anticipates applying the whole deposited amount to
payments for raw materials if the acquisition does not
occur.
   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 $2,050,882 (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
September 30, 2009 and December 31, 2008, intangible assets, less
accumulated amortization consisted of the following:
  12
  September
      30,
                  2009
                
                
                December
      31,
                  2008(Unaudited)
                
                
                (Audited)Intangible
      assets
                
                $
                208,215
                
                
                $
                208,332Less:
      Accumulated amortization
                
                
                41,196
                
                
                
                37,154Total
                
                $
                167,019
                
                
                $
                171,178
 For the nine
months ended September 30, 2009 and 2008, amortization expense amounted to
$4,060 and $3,816 respectively.
  The
amortization expenses for the next five years are as follows:
 
 2010
                
                $
                5,4142011
                
                
                5,4142012
                
                
                5,4142013
                
                
                5,4142014
                
                
                5,414
 13
  10.
 LOAN PAYABLE
 
 Loan payable
as of September 30, 2009 and December 31, 2008 consisted of the
following:
 
 September
      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.
                
                $
                ––
                
                
                $
                439,722Commencing
      from September 24, 2009, the Company borrowed certain short-term
      loans from Mr. Yang Liu, an unrelated party. These short-term loans were
      in amounts of RMB1.47 million (equivalent to $215,343) as of September 30,
      2009. The interest rate of these loans is 7.4% per year, and all due on
      September 24, 2010
                
                
                215,343
                
                
                
                ––Total
      Loan Payable
                
                $
                215,343
                
                
                $
                439,722
 
 11.
CONVERTIBLE NOTES AND WARRANTS
  
      14
 
 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.
  
  September
      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
  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.
  15
 
 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. Based on these regulations, 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 to December 31, 2007. Since Hanxin is qualified as
a High Tech Manufacturing Enterprise and located in State “High Tech Zone”, it
is also qualified for 15% income tax rate for year 2008 and the year after.
However, CIE is not a “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 September
30, 2009 and December 31, 2008, taxes payable consisted the
following:
  September
      30, 2009
                  
                  
                  December
      31, 2008(Unaudited)
                  
                  
                  (Audited)Value-added
      tax
                  
                  $
                  633,207
                  
                  
                  $
                  177,287Corporate
      income tax provision
                  
                  
                  412,327
                  
                  
                  
                  74,888Local
      taxes and surcharges
                  
                  
                  52,974
                  
                  
                  
                  13,491Franchise
      tax
                  
                  
                  28,308
                  
                  
                  
                  9,558Total
                  
                  $
                  1,126,816
                  
                  
                  $
                  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
      Nine Months Ended September 30,2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Audited)Current
      taxes:Current
      income taxes in P.R. China
                  
                  $
                  471,704
                  
                  
                  $
                  500,733Deferred
      taxes valuation allowance
                  
                  
                  5,326Total
      provision for income taxes
                  
                  $
                  477,030
                  
                  
                  $
                  500,733
  16
 13.  DUE TO STOCKHOLDERS/OFFICERS
  Amounts due
to stockholders/officers are unsecured, non-interest bearing, and have no set
repayment date. As of September 30, 2009 and December 31, 2008, the total net
amounts due to the stockholders/officers were $177,600 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 September 30, 2008.
  In May 2008,
the board of directors of the Company authorized, and on July 31, 2008 the
Company issued, 150,000 shares of the Company’s common stock to its attorney for
services rendered. In June 2008, the board of directors of the Company
authorized, and on August 14 2008 the Company issued, 100,000 shares of the
Company’s common stock to HAWK Associates, Inc (“Hawk”), its investor relations
firm for services rendered pursuant to the agreement. Accordingly, the Company
has 35,663,850 shares of issued and outstanding common stock as of November 13,
2009.
  In May 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 September 30, 2008.
  17
 15.
 BASIC AND DILUTED EARNING PER
SHARE
  
  For
      Three Months Ended September 30,
                    
                    
                    For
      Nine Months Ended September 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Unaudited
                    
                    
                    Unaudited
                    
                    
                    Unaudited
                    
                    
                    UnauditedBasic:Numerator:Net
      income for basic calculation
                    
                    $
                    1,222,460
                    
                    
                    $
                    1,270,405
                    
                    
                    $
                    1,963,911
                    
                    
                    $
                    2,404,234Denominator:Weighted
      average common shares
                    
                    
                    35,663,850
                    
                    
                    
                    35,564,961
                    
                    
                    
                    35,663,850
                    
                    
                    
                    35,464,220Net
      income per share — basic
                    
                    $
                    0.03
                    
                    
                    $
                    0.04
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.07Diluted:Numerator:Net
      income for basic calculation
                    
                    $
                    1,222,460
                    
                    
                    $
                    1,270,405
                    
                    
                    $
                    1,963,911
                    
                    
                    $
                    2,404,234Effect
      of dilutive securities issued
                    
                    
                    37,910
                    
                    
                    
                    98,594
                    
                    
                    
                    222,521
                    
                    
                    
                    119,402Net
      income for diluted calculation
                    
                    $
                    1,260,370
                    
                    
                    $
                    1,368,999
                    
                    
                    $
                    2,186,432
                    
                    
                    $
                    2,523,636Denominator:Denominator
      for basic calculation
                    
                    
                    35,663,850
                    
                    
                    
                    35,564,961
                    
                    
                    
                    35,663,850
                    
                    
                    
                    35,464,220Weighted
      average effect of dilutive securities:Warrants
                    
                    
                    -
                    
                    
                    
                    160,855
                    
                    
                    
                    -
                    
                    
                    
                    248,077Convertible
      debt
                    
                    
                    3,070,175
                    
                    
                    
                    3,070,175
                    
                    
                    
                    3,070,175
                    
                    
                    
                    1,273,554Denominator
      for diluted calculation
                    
                    
                    38,734,025
                    
                    
                    
                    38,795,991
                    
                    
                    
                    38,734,025
                    
                    
                    
                    36,985,851Net
      income per share — diluted
                    
                    $
                    0.03
                    
                    
                    $
                    0.04
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.07
  16.  COMMITMENTS
  The Company
leases its office space and production land under operating lease agreements
that are expiring on December 31, 2009, October 2, 2010, and
October 2047 respectively. The following is a schedule of future minimum
rental land payments required under these operating leases as of
September 30, 2009.
  For
      Nine Months Ending September 30,
                
                Amount2010
                
                $
                95,0812011
                
                
                17,5792012
                
                
                17,5792013
                
                
                17,5792014
                
                
                17,579Thereafter
                
                
                581,572Total
      minimum rental payments required
                
                $
                746,969
  Rent and
properties maintenance expenses amounted to $87,480 and $137,048 for the nine
months ended September 30, 2009 and 2008, respectively.
  18
 
 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 September 30, 2009.
  For
      Nine Months Ending September 30,
                
                Amount2010
                
                $
                351,5802011
                
                
                191,416Total
      minimum rental payments required
                
                $
                542,996
  Patent lease
expenses amounted to $263,685 and $257,726 for the nine months ended
September 30, 2009 and 2008, respectively.
 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 nine
months ended September 30, 2009 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):
  Purchased
      from
                
                
                Number
      of
                
                
                Percentage
      ofFor
      Nine Months Ended September 30,
                
                Major
      Suppliers
                
                
                Suppliers
                
                
                Total
      Purchased2009
                
                $
                3,308,935
                
                
                
                2
                
                
                
                23.29
                %2008
                
                $
                5,328,507
                
                
                
                3
                
                
                
                38.87
                %
 
 Geographical
Risks:
  Substantially
all of the Company’s assets and operations were in the PRC for the nine months
ended September 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.
 19
 
 18. OTHER
  
 On
August 4, 2009, the Company signed an exclusive financial advisor agreement
with Global Arena Capital Corp., (“GAC”) to have GAC act as the Lead or Managing
or Co-Underwriter or Investment Banker in connection with the proposed public
offering (the “Offering”) consisting of one share of Common Stock and one Common
Stock Purchase Warrant (the “Units”), of the Company its successors,
subsidiaries, affiliates or assigns on a “firm commitment” basis.
The   engagement period of  this
agreement is  from August 4, 2009 to May 31th, 2010, which may be extended by mutual
consent.
  19.  SUBSEQUENT
EVENT
  On
October 28, 2009, Hanxin signed another loan
agreement with Shaanxi Shuta and loaned the same amount of RMB10 million to
Shaanxi Shuta for the term from October 27, 2009 to October 27, 2011.
This loan is also non-interest bearing and unsecured.
  On
October 20, 2009, Hanxin also signed a forgiveness memo with Shaanxi Shuta
to express its sincerity to acquire 7,000 Mu (equivalent to
4,669,000 square meters) land use right located in Baoji District Shaanxi Providence from Shaanxi
Shuta within two years starting from October 20, 2009. In consider of the
expenditure of Shaanxi Shuta in acquired the land use right for Hanxin, Hanxin
agree to purchase this land use right within two
years in the same amount of RMB37.8 million listed in prior agreement.
In the event that Hanxin does not purchase the land by
October 20, 2011 , Hanxin will be liable to
pay Shaanxi Shuta all upfront operation costs approximately
RMB10 million (equivalent to $1,464,916) that Shaanxi Shuta had paid to
acquire the land use right from the Baoji District government.
  20
  ITEM
2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF
  OPERATION
   The following
analysis of our unaudited condensed consolidated financial condition and results
of operations for the three and nine months ended September 30, 2009 and
2008, should be read in conjunction with the consolidated financial statements,
including footnotes, and other information presented in our annual report on
Form 10-K as filed with the Securities and Exchange Commission on
April 16, 2009.
  Overview
 
 The Company
was incorporated under the laws of the State of Delaware on August 1, 1996.
The Company was formed in connection with the merger acquisition of Kushi
Macrobiotics Corp. (“KMC”) with American Phoenix Group, Inc. (“APGI”) in 1996.
Prior to such acquisition, KMC had operated a business of marketing a line of
natural foods (the “Kushi Cuisine”). This business was not successful and
management determined that it would be in the shareholder’s interest for KMC to
operate a different business. In August 2005, the Company, through Kushi
Sub, Inc., a newly formed Delaware corporation and wholly-owned subsidiary of
the Company ("Acquisition Sub") acquired all the ownership interest in Hanxin
(Cork) International Holding Co., Ltd. ("Hanxin International"), a British
Virgin Islands limited liability corporation, organized in September 2004.
The Company acquired Hanxin International in exchange for 24,000,000 shares of
common stock and 1,000 shares of the Series A Preferred Stock, which such
shares converted into 29,530,937 shares of common stock. Subsequent to the
merger and upon the conversion of the Series A Preferred Stock, the former
shareholders of Hanxin International currently own 95% of the outstanding shares
of the Company's common stock.
  Kushi Sub,
the surviving entity of the merger with Hanxin International, has no other
business activities other than owning 100% of Xi'An Cork Investments
Consultative Management Co., Ltd. ("Xi'An"), which owns 92% of Xian Hanxin
Technology Co., Ltd. ("Hanxin"), incorporated in July 2002, both Xi'An and
Hanxin are People's Republic of China (PRC) corporations. Most of the Company’s
operating and business activities are conducted through Hanxin.
  On
July 11, 2008, the Company's wholly owned subsidiary, Asia Cork Inc. was
merged into its parent, the Company as approved by the Board of Directors of the
Company pursuant to the Delaware General Corporation Law. The Company is the
surviving company of the merger and Certificate of Incorporation is otherwise
unchanged. The wholly-owned subsidiary was formed in July 2008 and had no
material assets. The Certificate of Merger was filed with the Secretary of State
of Delaware on July 11, 2008.
  As
permitted by Delaware General Corporation Law, the Company assumed the name of
its wholly owned subsidiary following the merger and now operates under the name
Asia Cork Inc. The Company’s common stock is quoted on the Over the Counter
Bulletin Board under the trading symbol “AKRK.OB.”
  21
 Business
Overview
  We are a
holding company based in Xi’an China whose primary business operations are
conducted through our wholly-owned subsidiary Hanxin International, and its
subsidiaries, Hanxin and Cork I&E. We are engaged in the development,
manufacture and distribution of cork wood floor, wall, sheets, rolls and other
cork decorating materials in China and other countries. Cork is a ‘green’
renewable resource harvested only from the bark of the cork oak tree, thus
leaving forests generally undamaged. The Company’s product lines include raw
cork materials, semi-finished cork and finished cork products such as cork
floorboards and cork wallboards.
  Hanxin is the
manufacturing subsidiary that produces cork-building material sold under the
Hanxin brand name and on a private label basis. Approximately 70% of Hanxin's
products sold in 2009 were to customers in foreign countries, among which 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 had assigned to Hanxin in year 2008 .
  Our objective
is to utilize the cost advantages of being based in China in order to become a
leading cork flooring producer. In order to achieve our objectives, we intend
to, among other things, increase our sales and marketing efforts, enhance
production capacity, ensure our raw material incoming source, acquire other cork
manufacturing factories and other cork exporting companies in China, export our
cork products to overseas countries by our own sales network, and establish our
own cork plantation in the world. Provided that our expansion plans above
mentioned can succeed, we expect that our production capacity will increase
substantially. There is no assurance that we will be able to achieve these
objectives.
  Foreign
Exchange Considerations
  Even though
we are a U.S. company, because all of our operations are located in the PRC, we
face certain risks associated with doing business in that country. These risks
include risks associated with the ongoing transition from state business
ownership to privatization, operating in a cash-based economy, dealing with
inconsistent government policies, unexpected changes in regulatory requirements,
export restrictions, tariffs and other trade barriers, challenges in staffing
and managing operations in a communist country, differences in technology
standards, employment laws and business practices, longer payment cycles and
problems in collecting accounts receivable, changes in currency exchange rates
and currency exchange controls. We are unable to control the vast majority of
these risks associated both with our operations and the country in which they
are located and these risks could result in significant declines in our
revenues.
  Because
revenues from our operations in the PRC accounted for 100% of our consolidated
net revenues, how we report net revenues from our PRC-based operations is of
particular importance to understanding our financial statements. Transactions
and balances originally denominated in U.S. dollars are presented at their
original amounts. Transactions and balances in other currencies are converted
into U.S. dollars in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52, "Foreign Currency Translation," and are included in
determining comprehensive net income or loss. For foreign operations with the
local currency as the functional currency, assets and liabilities are translated
from the local currencies into U.S. dollars. Translation adjustments resulting
from the process of translating the local currency financial statements into
U.S. dollars are included in determining comprehensive income or
loss.
  22
 
 The
functional currency of our Chinese subsidiaries is the Chinese RMB, the local
currency. The financial statements of the subsidiaries are translated to U.S.
dollars using year-end rates of exchange for assets and liabilities, and average
rates of exchange for the period for revenues, costs, and expenses. Net gains
and losses resulting from foreign exchange transactions are included in the
consolidated statements of operations and were not material during the periods
presented. Until 1994, the RMB experienced a gradual but significant devaluation
against most major currencies, including U.S. dollars, and there was a
significant devaluation of the RMB on January 1, 1994 in connection with
the replacement of the dual exchange rate system with a unified managed floating
rate foreign exchange system. Since 1994, the value of the RMB relative to the
U.S. Dollar has remained stable and has appreciated slightly against the U.S.
dollar. Countries, including the United States, have argued that the RMB is
artificially undervalued due to China's current monetary policies and have
pressured China to allow the RMB to float freely in world markets.
  On
July 21, 2005, the PRC reported that it would have its currency pegged to a
basket of currencies rather than just tied to a fixed exchange rate to the
dollar. It also increased the value of its currency 2% higher against the
dollar, effective immediately. If any devaluation of the RMB were to occur in
the future, returns on our operations in China, which are expected to be in the
form of RMB, will be negatively affected upon conversion to U.S. dollars.
Although we attempt to have most future payments, mainly repayments of loans and
capital contributions, denominated in U.S. dollars, if any increase in the value
of the RMB were to occur in the future, our product sales in China and in other
countries may be negatively affected.
  Critical
Accounting Policies
  The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
  A summary of
significant accounting policies is included in Note 1 to the consolidated
financial statements. Management believes that the application of these policies
on a consistent basis enables us to provide useful and reliable financial
information about our operating results and financial condition
  23
 
 The Company
records property and equipment at cost. Depreciation is provided using the
straight-line method over the estimated economic lives of the assets, which are
from 1 to 35 years. Expenditures for major renewals and betterments that extend
the useful lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. We review the
carrying value of long-lived assets for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of long-lived assets is measured by
comparison of its carrying amount to the undiscounted cash flows that the asset
or asset group is expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property, if any, exceeds its fair market
value.
  The Company's
revenues from the sale of products are recognized when the goods are shipped,
title passes, the sales price to the customer is fixed and collectability is
reasonably assured. Persuasive evidence of an arrangement is demonstrated via
purchase order from customer, product delivery is evidenced by warehouse
shipping log as well as bill of lading from the trucking company and no product
return is allowed except defective or damaged products, the sales price to the
customer is fixed upon acceptance of purchase order, there is no separate sales
rebate, discounts, and volume incentives.
  RESULTS OF
OPERATIONS
  THREE
MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,
2008
  For
      Three Months Ended September 30,2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  Increase/(Decrease)Revenues
                  
                  $
                  10,151,002
                  
                  
                  $
                  8,958,570
                  
                  
                  $
                  1,192,432
                  
                  
                  
                  13.31
                  %Cost
      of Goods Sold
                  
                  
                  6,481,710
                  
                  
                  
                  5,810,298
                  
                  
                  
                  671,412
                  
                  
                  
                  11.56
                  %Gross
      Profit
                  
                  
                  3,669,292
                  
                  
                  
                  3,148,272
                  
                  
                  
                  521,020
                  
                  
                  
                  16.55
                  %Gross
      Profit Percentage
                  
                  
                  36.15
                  %
                  
                  
                  35.14
                  %Operating
      ExpensesSelling
      expenses
                  
                  
                  1,555,095
                  
                  
                  
                  1,146,051
                  
                  
                  
                  409,044
                  
                  
                  
                  35.69
                  %Bad
      debt expenses
                  
                  
                  248,574
                  
                  
                  
                  6,466
                  
                  
                  
                  242,108
                  
                  
                  
                  3744.32
                  %General
      and administrative expense
                  
                  
                  228,127
                  
                  
                  
                  244,575
                  
                  
                  
                  (16,448
                  )
                  
                  
                  -6.73
                  %Total
      Operating Expenses
                  
                  
                  2,031,796
                  
                  
                  
                  1,397,092
                  
                  
                  
                  634,704
                  
                  
                  
                  45.43
                  %Income
      From Operations
                  
                  
                  1,637,496
                  
                  
                  
                  1,751,180
                  
                  
                  
                  (113,684
                  )
                  
                  
                  -6.49
                  %Other
      Income (Expenses)Interest
      expenses, net
                  
                  
                  (41,752
                  )
                  
                  
                  (113,771
                  )
                  
                  
                  72,019
                  
                  
                  
                  -63.30
                  %Other
      income , net
                  
                  
                  26,260
                  
                  
                  
                  25,705
                  
                  
                  
                  555
                  
                  
                  
                  2.16
                  %Total
      Other Expenses
                  
                  
                  (15,492
                  )
                  
                  
                  (88,066
                  )
                  
                  
                  72,574
                  
                  
                  
                  -82.41
                  %Income
      Before Taxes
                  
                  
                  1,622,004
                  
                  
                  
                  1,663,114
                  
                  
                  
                  (41,110
                  )
                  
                  
                  -2.47
                  %Income
      Tax Provision
                  
                  
                  293,830
                  
                  
                  
                  272,822
                  
                  
                  
                  21,008
                  
                  
                  
                  7.70
                  %Income
      Before Noncontrolling Interest
                  
                  
                  1,328,174
                  
                  
                  
                  1,390,292
                  
                  
                  
                  (62,118
                  )
                  
                  
                  -4.47
                  %Less:
      Net income attributable to the noncontrolling interest
                  
                  
                  105,714
                  
                  
                  
                  119,887
                  
                  
                  
                  (14,173
                  )
                  
                  
                  -11.82
                  %Net
      Income Attributable to Asia Cork Inc.
                  
                  $
                  1,222,460
                  
                  
                  $
                  1,270,405
                  
                  
                  $
                  (47,945
                  )
                  
                  
                  -3.77
                  %
 24
 Revenues
  Entering the
third quarter of 2009, our business revived as the market for our products
recovered from the low levels of the fourth quarter of 2008 and the first
quarter of 2009. During the three months ended September 30, 2009, our
revenues were $10,151,002 as compared to $8,958,570 for the three months ended
September 30, 2008, an increase of $1,192,432 or 13.31%. The primary reason
for the increase was the significant improvement in the market condition for
home and commercial renovation in China and the success of our marketing
efforts.
  Cost
of Sales and Gross Profit
  During the
three months ended September 30, 2009, cost of sales amounted to $6,481,710
or 63.85% of net revenues as compared to cost of sales of $5,810,298 or 64.86%
of net revenues for the three months ended September 30, 2008. Gross profit
during the three months ended September 30, 2009 was $3,669,292 or 36.15%
of revenues, as compared to $3,148,272 or 35.14% of revenues for the three
months ended September 30, 2008. The gross margin increased mainly as a
result of slightly reduced manufacture costs in the third quarter of 2009,
compared to the same quarter of 2008.
  Operating
Expenses
  of
  Other
Income (expense)
  
  During the
three months ended September 30, 2009, net other income was $26,260 as
compared to net other income $25,705 for the three months ended
September 30, 2008, The increase of $555 or 2.16% in net other income was
due to the rental income we realized from the rental of our entertainment
facility. This rental income was offset by the franchise taxes accrued for the
State of Delaware.
  
  Income
Tax
  
  Net
Income
  
  25
 
 NINE
MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2008
  For
      Nine Months Ended September 30,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Decrease)/
      IncreaseRevenues
                    
                    $
                    17,056,777
                    
                    
                    $
                    17,841,299
                    
                    
                    $
                    (784,522
                    )
                    
                    
                    -4.40
                    %Cost
      of Goods Sold
                    
                    
                    11,032,415
                    
                    
                    
                    11,666,418
                    
                    
                    
                    (634,003
                    )
                    
                    
                    -5.43
                    %Gross
      Profit
                    
                    
                    6,024,362
                    
                    
                    
                    6,174,881
                    
                    
                    
                    (150,519
                    )
                    
                    
                    -2.44
                    %Gross
      Profit Percentage
                    
                    
                    35.32
                    %
                    
                    
                    34.61
                    %Operating
      ExpensesSelling
      expenses
                    
                    
                    2,470,208
                    
                    
                    
                    2,255,551
                    
                    
                    
                    214,657
                    
                    
                    
                    9.52
                    %Bad
      debt expenses
                    
                    
                    253,104
                    
                    
                    
                    9,052
                    
                    
                    
                    244,052
                    
                    
                    
                    2696.11
                    %General
      and administrative expense
                    
                    
                    500,562
                    
                    
                    
                    660,932
                    
                    
                    
                    (160,370
                    )
                    
                    
                    -24.26
                    %Total
      Operating Expenses
                    
                    
                    3,223,874
                    
                    
                    
                    2,925,535
                    
                    
                    
                    298,339
                    
                    
                    
                    10.20
                    %Income
      From Operations
                    
                    
                    2,800,488
                    
                    
                    
                    3,249,346
                    
                    
                    
                    (448,858
                    )
                    
                    
                    -13.81
                    %Other
      Income (Expenses)Interest
      expenses, net
                    
                    
                    (259,117
                    )
                    
                    
                    (160,128
                    )
                    
                    
                    (98,989
                    )
                    
                    
                    61.82
                    %Other
      income, net
                    
                    
                    78,760
                    
                    
                    
                    30,671
                    
                    
                    
                    48,089
                    
                    
                    
                    156.79
                    %Total
      Other Expenses
                    
                    
                    (180,357
                    )
                    
                    
                    (129,457
                    )
                    
                    
                    (50,900
                    )
                    
                    
                    39.32
                    %Income
      Before Taxes
                    
                    
                    2,620,131
                    
                    
                    
                    3,119,889
                    
                    
                    
                    (499,758
                    )
                    
                    
                    -16.02
                    %Income
      Tax Provision
                    
                    
                    477,030
                    
                    
                    
                    500,733
                    
                    
                    
                    (23,703
                    )
                    
                    
                    -4.73
                    %Income
      Before Noncontrolling Interest
                    
                    
                    2,143,101
                    
                    
                    
                    2,619,156
                    
                    
                    
                    (476,055
                    )
                    
                    
                    -18.18
                    %Less:
      Net income attributable to the noncontrolling interest
                    
                    
                    179,190
                    
                    
                    
                    214,922
                    
                    
                    
                    (35,732
                    )
                    
                    
                    -16.63
                    %Net
      Income Attributable to Asia Cork Inc.
                    
                    $
                    1,963,911
                    
                    
                    $
                    2,404,234
                    
                    
                    $
                    (440,323
                    )
                    
                    
                    -18.31
                    %
  26
 Revenues
  Our business
continued to improve during the nine months ended September 30, 2009, as
the market for our products improved in China, although revenue declined to
$17,056,777 during the nine months ended September 30, 2009, compared to
$17,841,299 during the nine months ended September 30, 2008, The decreased
revenue during the nine months ended September 30, 2009 was mainly due to
the adverse market condition for home and commercial renovation during the
fourth quarter of 2008 and the first quarter of 2009, compared to the prior
periods. However, our business has improved as the market recovered during the
second and third quarter of 2009.
  Cost
of Sales and Gross Profit
  During the
nine months ended September 30, 2009, cost of sales amounted to $11,032,415
or 64.68% of net revenues as compared to cost of sales of $11,666,418 or 65.39%
of net revenues during the nine months ended September 30, 2008. Gross
profit during the nine months ended September 30, 2009 was $6,024,362 or
35.32% of revenues, as compared to $6,174,881 or 34.61% of revenues during the
nine months ended September 30, 2008. The gross margin during the nine
months ended September 30, 2009 is almost same as the same period of 2008.
The gross margin increased slightly as a result of slightly reduced manufacture
costs in the current year of 2009, compared to the same period of
2008.
  Operating
Expenses
  
  Other
Income (expense)
  
  Other
expense, net during the nine months ended September 30, 2009 and 2008 is
related to the income received from the rental of our entertainment facility.
This rental income was primarily offset by the franchise tax accrued for the
State of Delaware and the donation contribution made by the Company during the
three months ended September 30, 2008 in the amount of $71,822 and which
such donation was made in connection with the earthquake in Sichuan
PRC.
  27
  
  Income
Tax
  
  Net
Income
  
  LIQUIDITY
AND CAPITAL RESOURCES
  
  
  28
 
 Cash used in
investing activities was $708,962 during the nine months ended
September 30, 2009, compared to net cash provided by investing activities
of $1,162,600 in the same period 2008. The financing cash inflow increase during
the first nine months of 2008 was primarily because a deposit for the purchase
of intangible assets was refunded in September 2008.
  Cash used in
financing activities was $224,132 during the nine months ended
September 30, 2009, compared with net cash provided by financing activities
of $567,450 in the same period 2008. The greater financing cash inflow during
the first nine months of 2008 was primarily because we issued convertible notes
in the principal amount of $700,000 in June 2008.
  On
June 4 and June 12, 2008, the Company consummated an offering of
convertible promissory notes and common stock purchase warrants for aggregate
gross proceeds of $700,000. The notes mature one (1) year from the date of
issuance and bore interest at an annual rate of 18%, payable at maturity in USD.
Since the notes were not paid at maturity, the annual interest rate increased to
24%.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 was not achieved within the one
year term of the promissory notes, each investor has the option to be paid the
principal and interest due under the promissory note or convert the note into
shares of common stock at a conversion price of $0.228 per share. The warrants
are exercisable at any time after the consummation of the Financing through the
fourth anniversary of the consummation of the Financing (the "Financing
Expiration Date"). Each holder is entitled to purchase the number of shares of
common stock equal to the initial principal amount of such investor's promissory
note DIVIDED BY the lowest cash purchase price paid for the Company's common
stock (or the conversion price or exercise price if the Financing consists of
convertible securities or warrants, respectively) in the Financing (the
"Financing Based Conversion Price") at an exercise price equal to the Financing
Based Conversion Price. Since the Financing did not occur within 12 months of
the issuance of the warrant, the warrant is exercisable from and after such date
and through the fourth anniversary of the issuance date of the warrant. In such
event, the holder is entitled to purchase the number of shares of common stock
equal to 50% of the initial principal amount of the promissory note DIVIDED BY
$0.228 at an exercise price equal to $0.228, subject to certain adjustments as
set forth in the warrant. The interest payable regarding the convertible notes
has been accrued and recorded as of September 30, 2009. However,
satisfaction of the Company’s obligations under the notes is under negotiation
as of November 11 , 2009, but there can be no
assurance that the holders of the convertible notes will agree to extend the due
date or the terms of such extension. The promissory notes are secured by Common
Stock pledged by Pengcheng Chen, our Chief Executive Officer and Fangshe Zhang,
our Chairman. However, at the present time, we do not have sufficient cash or
cash equivalents to repay the promissory should the investors demand payment.
The Company is seeking alternate financing, but there is no assurance it will be
obtained.
  With
approximately $9.1 million of net working capital (total current assets
less total current liabilities), improvements in our collections of accounts
receivable and positive cash flow from operations as of September 30, 2009,
we believe we will have sufficient resources to finance our operations for the
coming year.
  29
 
 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.
   30
  Part
II - OTHER INFORMATION
  ITEM 1.
                LEGAL
      PROCEEDINGS
  None
  IITEM
      1A
                RICK
      FACTORS
  A smaller
reporting company is not required to provide the information required by this
Item.
  IITEM
      2
                UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
  PROCEEDS.
  We have
not sold any equity securities during the nine month period ended
September 30, 2009.
  IITEM
      3
                DEFAULTS
      UPON SENIOR SECURITIES
  There
were no defaults upon senior securities during the nine month period ended on
September 30, 2009.
  ItITEM
      4
                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  No
matters were submitted to a vote of security holders during the nine month
period ended on September 30, 2009.
  IITEM
      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 200232.1
                
                Certification
      of Chief Executive Officer Certification pursuant to Section 906 of
      the Sarbanes-Oxley Act of 200232.2
                
                Certification
      of Chief Financial Officer Certification pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 .
  31
  SIGNATURES
  In
accordance with the requirements of the Exchange Act, the registrant has caused
his report to be signed on its behalf by the undersigned, thereunto duly
authorized.
  ASIA
      CORK INC.By:
                /s/
      Pengcheng ChenPengcheng
      Chen
                  Chief
      Executive Officer
  Date:   February 11, 2010
 By:
                /s/
      Yi TongYi
      Tong Chief Financial Officer