United States

Securities and Exchange Commission

Washington, D.C. 20549



FORM 10-Q



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

For the quarterly period ended June 30, 2009

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

For the transition period from:

Commission file number000-30115



ASIA CORK INC.

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



|                                                               |                                  
|-------------------------------------------------------------- | ---------------------------------
|DELAWARE                                                       | 13-3912047                       
|(State of other jurisdiction of incorporation or organization) | (IRS Employer Identification No.)



3rd Floor, A Tower of Chuang Xin

Information Building

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

(Address of principal executive offices, including zip code)

(011) 86-13301996766

(Issuers telephone number, including area code)



(Former Address, if changed since last report)

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

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

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  ̈     Small reporting company þ

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

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: On August 15, 2009 there were 35,663,850 shares of Common Stock, par value $.0001 per share, outstanding.

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









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ASIA CORK INC.

FORM 10-Q

QUARTERLY PERIOD ENDED June 30, 2009

INDEX



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PAGE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|PART I  FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Item 1.        Financial Statements
1
Item 2.        Management's Discussion And Analysis Or Plan Of Operation
15
Item 3.        Quantitative And Qualitative Disclosures About Market Risk
23
Item 4.        Controls And Procedures
23

PART II  OTHER INFORMATION

Item 1.        Legal Proceedings
24
Item 1A.     Risk Factors
24
Item 2.        Unregistered Sales Of Equity Securities And Use Of Proceeds.
24
Item 3.        Defaults Upon Senior Securities
24
Item 4.        Submission Of Matters To A Vote Of Security Holders
24
Item 5.        Other Information
24
Item 6.        Exhibits
24





i



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PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Asia Cork Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

|                                                                                                  |  |               |            |  |                   |   |            | 
|------------------------------------------------------------------------------------------------- |  | ------------- | ---------- |  | ----------------- | - | ---------- | 
|                                                                                                  |  | June 30,
2009 |            |  | December 31,
2008 |  
|                                                                                                  |  | (Unaudited)   |            |  | (Audited)         |  
|Assets:                                                                                           |  |               |            |  |                   |  
|Current Assets                                                                                    |  |               |            |  |                   |  
|Cash and equivalents                                                                              |  | $             | 497,724    |  |                   | $ | 23,605     | 
|Accounts receivable, net of allowance for doubtful 
accounts of $28,290 and $23,787, respectively |  |               | 5,710,647  |  |                   |   | 4,956,005  | 
|Inventories                                                                                       |  |               | 2,116,528  |  |                   |   | 2,756,011  | 
|Advance to suppliers                                                                              |  |               | 3,280,798  |  |                   |   | 2,562,357  | 
|Loan to unrelated party                                                                           |  |               | 1,463,981  |  |                   |   | 1,465,738  | 
|Deferred income tax assets                                                                        |  |               | 5,633      |  |                   |   | 7,757      | 
|Prepayments and other current assets                                                              |  |               | 59,645     |  |                   |   | 15,038     | 
|Total Current Assets                                                                              |  |               | 13,134,956 |  |                   |   | 11,786,511 | 
|                                                                                                  |  |               |            |  |                   |   |            | 
|Property and Equipment - Net                                                                      |  |               | 4,661,015  |  |                   |   | 4,813,629  | 
|Deposit for Purchase of Fixed Assets                                                              |  |               | 2,020,294  |  |                   |   | 2,022,719  | 
|Deposit for Acquisition                                                                           |  |               | 1,463,981  |  |                   |   | 1,465,738  | 
|Investment - At Cost                                                                              |  |               | 2,049,573  |  |                   |   | 2,052,034  | 
|Intangible Assets- Net                                                                            |  |               | 168,266    |  |                   |   | 171,178    | 
|Deferred Income Tax Assets                                                                        |  |               | 15,083     |  |                   |   | 16,586     | 
|Total Assets                                                                                      |  |               | 23,513,168 |  |                   |   | 22,328,395 | 
|                                                                                                  |  |               |            |  |                   |   |            | 
|Liabilities and Equity:                                                                           |  |               |            |  |                   |   |            | 
|Liabilities:                                                                                      |  |               |            |  |                   |   |            | 
|Current Liabilities                                                                               |  |               |            |  |                   |   |            | 
|Accounts payable and accrued expenses                                                             |  |               | 1,798,337  |  |                   |   | 1,427,452  | 
|Loan payable                                                                                      |  |               |           |  |                   |   | 439,722    | 
|Convertible note                                                                                  |  |               | 700,000    |  |                   |   | 700,000    | 
|Customer deposit                                                                                  |  |               | 10,106     |  |                   |   | 10,118     | 
|Taxes payable                                                                                     |  |               | 576,521    |  |                   |   | 275,219    | 
|Due to stockholders/officers                                                                      |  |               | 177,486    |  |                   |   | 177,699    | 
|Other current liabilities                                                                         |  |               | 18,506     |  |                   |   | 33,027     | 
|Total Current Liabilities                                                                         |  |               | 3,280,956  |  |                   |   | 3,063,237  | 
|                                                                                                  |  |               |            |  |                   |   |            | 
|Total Liabilities                                                                                 |  |               | 3,280,956  |  |                   |   | 3,063,237  | 
|                                                                                                  |  |               |            |  |                   |   |            | 
|Equity:                                                                                           |  |               |            |  |                   |   |            | 
|Asia Cork Inc. Stockholders' Equity:                                                              |  |               |            |  |                   |   |            | 
|Common stock, $0.0001 par value, 200,000,000 shares authorized,                                   |  |               |            |  |                  
|35,663,850 issued and outstanding                                                                 |  |               | 3,566      |  |                   |   | 3,566      | 
|Additional paid-in capital                                                                        |  |               | 4,400,946  |  |                   |   | 4,400,946  | 
|Reserve funds                                                                                     |  |               | 2,385,358  |  |                   |   | 2,231,904  | 
|Retained earnings                                                                                 |  |               | 8,921,693  |  |                   |   | 8,160,402  | 
|Accumulated other comprehensive income                                                            |  |               | 2,645,246  |  |                   |   | 2,668,838  | 
|Total Asia Cork Inc. Stockholders' Equity                                                         |  |               | 18,356,809 |  |                   |   | 17,465,656 | 
|Noncontrolling Interest                                                                           |  |               | 1,875,403  |  |                   |   | 1,799,502  | 
|Total Equity                                                                                      |  |               | 20,232,212 |  |                   |   | 19,265,158 | 
|                                                                                                  |  |               |            |  |                   |   |            | 
|Total Liabilities and Equity                                                                      |  | $             | 23,513,168 |  |                   | $ | 22,328,395 | 



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements



1



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Asia Cork Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

|                                                             |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|------------------------------------------------------------ |  | ------------------------------- | ----------- | ----------------------------- | - | ----------- | - | ---- | ----------- | - | - | ----------- | -
|                                                             |  | For Three Months Ended June 30, |             | For Six Months Ended June 30, |  
|                                                             |  | 2009                            |             | 2008                          |   | 2009        |   | 2008 |            
|                                                             |  |                                 | (Unaudited) |                               |   | (Unaudited) |   |      | (Unaudited) |   |   | (Unaudited) |  
|                                                             |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Revenues                                                     |  | $                               | 6,003,271   |                               | $ | 6,366,384   |   | $    | 6,905,775   |   | $ | 8,882,729   |  
|Cost of Goods Sold                                           |  |                                 | 3,861,118   |                               |   | 4,173,021   |   |      | 4,550,705   |   |   | 5,856,120   |  
|Gross Profit                                                 |  |                                 | 2,142,153   |                               |   | 2,193,363   |   |      | 2,355,070   |   |   | 3,026,609   |  
|                                                             |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Operating Expenses                                           |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Selling expenses                                             |  |                                 | 794,478     |                               |   | 832,792     |   |      | 919,643     |   |   | 1,112,086   |  
|General and administrative expense                           |  |                                 | 148,313     |                               |   | 341,248     |   |      | 252,755     |   |   | 414,717     |  
|Total Operating Expenses                                     |  |                                 | 942,791     |                               |   | 1,174,040   |   |      | 1,172,398   |   |   | 1,526,803   |  
|                                                             |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Income From Operations                                       |  |                                 | 1,199,362   |                               |   | 1,019,323   |   |      | 1,182,672   |   |   | 1,499,806   |  
|Other Income (Expense)                                       |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Interest expense, net                                        |  |                                 | (44,423     | )                             |   | (19,835     | ) |      | (57,044     | ) |   | (32,388     | )
|Other income (expense), net                                  |  |                                 | 27,775      |                               |   | (29,177     | ) |      | 52,500      |   |   | 4,966       |  
|Total Other Expense                                          |  |                                 | (16,648     | )                             |   | (49,012     | ) |      | (4,544      | ) |   | (27,422     | )
|                                                             |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Income Before Taxes                                          |  |                                 | 1,182,714   |                               |   | 970,311     |   |      | 1,178,128   |   |   | 1,472,384   |  
|Provision for Income Taxes                                   |  |                                 | 183,202     |                               |   | 148,490     |   |      | 187,482     |   |   | 225,281     |  
|                                                             |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Net Income Before Noncontrolling Interest                    |  |                                 | 999,512     |                               |   | 821,821     |   |      | 990,646     |   |   | 1,247,103   |  
|Less: Net income attributable to the noncontrolling interest |  |                                 | 78,936      |                               |   | 60,146      |   |      | 75,901      |   |   | 95,246      |  
|Net Income Attributable to Asia Cork Inc.                    |  | $                               | 920,576     |                               | $ | 761,675     |   | $    | 914,745     |   | $ | 1,151,857   |  
|                                                             |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Earnings Per Share - Basic and Diluted:                      |  |                                 |             |                               |   |             |   |      |             |   |   |             |  
|Net income per share attributable to
Asia Cork Inc.          |  | $                               | 0.03        |                               | $ | 0.02        |   | $    | 0.03        |   | $ | 0.03        |  
|Weighted Common Shares Outstanding - Basic and Diluted       |  |                                 | 35,663,850  |                               |   | 35,413,850  |   |      | 35,663,850  |   |   | 35,413,850  |  





The accompanying notes are an integral part of these unaudited condensed consolidated financial statements



2



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Asia Cork Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

|                                           |  |                               |         |   |             |   |           | 
|------------------------------------------ |  | ----------------------------- | ------- | - | ----------- | - | --------- | 
|                                           |  | For Six Months Ended June 30, |        
|                                           |  | 2009                          |         |   | 2008        |  
|                                           |  | (Unaudited)                   |         |   | (Unaudited) |  
|Net Income Before Noncontrolling Interest  |  | $                             | 990,646 |   |             | $ | 1,247,103 | 
|Other Comprehensive (Loss) Income:         |  |                               |         |   |             |   |           | 
|Foreign Currency Translation (Loss) Income |  |                               | (23,592 | ) |             |   | 995,594   | 
|Comprehensive (Loss) Income                |  | $                             | 967,054 |   |             | $ | 2,242,697 | 











The accompanying notes are an integral part of these unaudited condensed consolidated financial statements



3



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Asia Cork Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows  (Unaudited)

|                                                                                |  |                                   |          |   |             |   |            |  
|------------------------------------------------------------------------------- |  | --------------------------------- | -------- | - | ----------- | - | ---------- | -
|                                                                                |  | For the Six Months Ended June 30, |         
|                                                                                |  | 2009                              |          |   | 2008        |  
|                                                                                |  | (Unaudited)                       |          |   | (Unaudited) |  
|Cash Flows From Operating Activities                                            |  |                                   |          |   |             |  
|Net Income                                                                      |  | $                                 | 914,745  |   |             | $ | 1,151,857  |  
|Adjustments to Reconcile Net Income to Net Cash                                 |  |                                   |          |   |             |   |            |  
|Provided by Used in) Operating Activities                                       |  |                                   |          |   |             |   |            |  
|Depreciation and amortization                                                   |  |                                   | 149,497  |   |             |   | 117,426    |  
|Bad debt adjustment                                                             |  |                                   | 4,530    |   |             |   | (2,586     | )
|Net income attributable to noncontrolling interest                              |  |                                   | 75,901   |   |             |   | 95,246     |  
|Deferred income tax valuation allowance                                         |  |                                   | 3,596    |   |             |   |           |  
|Changes in operating assets and liabilities:                                    |  |                                   |          |   |             |   |            |  
|Accounts receivable                                                             |  |                                   | (766,034 | ) |             |   | (486,350   | )
|Inventories                                                                     |  |                                   | 636,942  |   |             |   | (1,282,737 | )
|Advance to suppliers                                                            |  |                                   | (722,379 | ) |             |   | (285,438   | )
|Prepayments and other current assets                                            |  |                                   | (44,679  | ) |             |   | (64,593    | )
|Accounts payable and accrued expenses                                           |  |                                   | 373,044  |   |             |   | 290,430    |  
|Customer deposits                                                               |  |                                   |        |   |             |   | 147,133    |  
|Taxes payable                                                                   |  |                                   | 301,994  |   |             |   | (19,399    | )
|Other current liabilities                                                       |  |                                   | (14,499  | ) |             |   | 8,049      |  
|Net Cash (Used in) Provided by Operating Activities                             |  |                                   | 912,658  |   |             |   | (330,962   | )
|                                                                                |  |                                   |          |   |             |   |            |  
|Cash Flows From Investing Activities                                            |  |                                   |          |   |             |   |            |  
|Payment for construction in process                                             |  |                                   |         |   |             |   |           |  
|Net Cash Used in Investing Activities                                           |  |                                   |          |   |             |   |            |  
|                                                                                |  |                                   |          |   |             |   |            |  
|Cash Flows From Financing Activities                                            |  |                                   |          |   |             |   |            |  
|Proceeds from long-term debt                                                    |  |                                   |         |   |             |   | 437,375    |  
|Payments to long-term debt                                                      |  |                                   | (439,722 | ) |             |   | (568,588   | )
|Proceeds from convertible note                                                  |  |                                   |         |   |             |   | 70,000     |  
|Net Cash (Used in) Provided by Financing Activities                             |  |                                   |          |   |             |   |            |  
|                                                                                |  |                                   |          |   |             |   |            |  
|Net Increase in Cash and Equivalents                                            |  |                                   | 472,936  |   |             |   | 204,293    |  
|Effect of Exchange Rate Changes on Cash                                         |  |                                   | 1,183    |   |             |   | (103,470   | )
|Cash and Equivalents at Beginning of Period                                     |  |                                   | 23,605   |   |             |   | 367,396    |  
|Cash and Equivalents at End of Period                                           |  | $                                 | 497,724  |   |             | $ | 468,219    |  
|                                                                                |  |                                   |          |   |             |   |            |  
|SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION                                 |  |                                   |          |   |            
|Interest paid for the six months ended June 30, 2009 and 2008,
respectively     |  | $                                 | 27,840   |   |             | $ | 31,818     |  
|Income taxes paid for the six months ended June 30, 2009 and 2008,
respectively |  | $                                 | 134,490  |   |             | $ | 295,132    |  
|                                                                                |  |                                   |          |   |             |   |            |  
|SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES            |  |                                   |          |   |             |   |            |  
|Construction in process transferred out to property                             |  | $                                 |         |   |             | $ | 2,409,299  |  
|Shareholder donated intangible assets into the Company without payment          |  | $                                 |         |   |             | $ | 4,199      |  







The accompanying notes are an integral part of these unaudited condensed consolidated financial statements



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Asia Cork Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.

BASIS OF PRESENTATION

a)

Interim financial statements

The unaudited condensed consolidated financial statements of Asia Cork Inc and subsidiaries (the "Company") have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The consolidated balance sheet information as of December 31, 2008 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that report.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated.

b)

Description of business and reverse merger:

Asia Cork Inc. (f/k/a Hankersen International Corp.) (Asia Cork") was incorporated on August 1, 1996, under the laws of the State of Delaware. Until August 2005, Asia Corky had no operations and the sole purpose of Asia Cork was to locate and consummate a merger or acquisition with a private entity.

On July 11, 2008, Asia Corks wholly owned subsidiary, Asia Cork Inc., was merged into its parent, Asia Cork, in order to change the name of Asia Cork, after approval by the Board of Directors of Asia Cork pursuant to the Delaware General Corporation Law. Asia Cork is the surviving company of the merger and, except for the adoption of the new name its Certificate of Incorporation is otherwise unchanged. The wholly-owned subsidiary was formed in July 2008 and had no material assets.

As permitted by Delaware General Corporation Law, Asia Cork assumed the name of its wholly owned subsidiary following the merger and now operates under the name Asia Cork Inc. Asia Corks common stock is quoted on the Over the Counter Bulletin Board under the trading symbol AKRK.OB.

Asia Cork and all its subsidiaries listed below will be called the Company in the accompanying condensed consolidated financial statements.

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.



5



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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.

During the year ended December 31, 2005, the Company, through Hanxin acquired 75% equity interest of Cork Import and Export Co. Ltd. (CIE), a PRC corporation engages in cork trading businesses.

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.

Hanxin is engaged in developing, manufacturing and marketing of cork wood floor, wall and decorating materials. Its products are sold to customers in China and oversea customers in India, the United States of America, Germany and Japan through the distributors or agents.

c)

Use of estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reported period. Significant estimates in 2009 and 2008 include the estimated useful lives and fair values of the assets. Actual results could differ from those estimates.

d)

Revenue recognition:

The Company's revenues from the sale of products are recognized when the goods are shipped, title passes, the sales price to the customer is fixed and collectability is reasonably assured. Persuasive evidence of an arrangement is demonstrated via purchase order from distributor, our customers, product delivery is evidenced by warehouse shipping log as well as signed bill of lading, or shipping documents from the trucking company and no product return is allowed except defective or damaged products, the sales price to the customer is fixed upon acceptance of purchase order, there is no separate sales rebate, discounts, and volume incentives.

e)

Income taxes

The Company and its U. S. subsidiary will file consolidated federal income taxes return and state franchise tax annual report individually. The Company's PRC subsidiaries file income tax returns under the Income Tax Law of the People's Republic of China concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws. The Company's BVI subsidiary is exempt from income taxes.

The Company follows Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.



6



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f)

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.

g)

Recent Accounting Pronouncements:

In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162. The FASB Accounting Standards Codification TM (Codification) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Adoption of SFAS 168 is not expected to have a material impact on the Companys results of operations or financial position.

In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R), which improves financial reporting by enterprises involved with variable interest entities. SFAS 167 addresses (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities , as a result of the elimination of the qualifying special-purpose entity concept in SFAS 166 and (2) concerns about the application of certain key provisions of FIN 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprises involvement in a variable interest entity. SFAS 167 shall be effective as of the beginning of each reporting entitys first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Adoption of SFAS 167 is not expected to have a material impact on the Companys results of operations or financial position.

In May 2009, the FASB issued SFAS 165, Subsequent Events , which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. An entity should apply the requirements of SFAS 165 to interim or annual financial periods ending after June 15, 2009. The Company is in the process of evaluating the new disclosure requirements under SFAS 165.

2.

ACCOUNT RECEIVABLE

During the fourth quarter of 2008, due to adverse market conditions for home and commercial renovation and decoration, the Companys accounts receivable outstanding for over half year increased promptly to the amounts of $1,741,487 (equivalent to RMB11,881,294) as of December 31, 2008. Commencing April, 2009, since adverse market conditions were eliminated gradually, total revenues and accounts receivable outstanding of the Company increased significantly during the second quarter 2009. As of June 30, 2009, the accounts receivable outstanding was valued at $5,738,937 (equivalent to RMB 39,200,898). Due to



7



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concern about certain accounts receivable, Hanxin adopted a bad debt allowance at 0.5% of the principal amount that account receivable. Accordingly, the bad debt allowance was $28,290, and the net amount of accounts receivable was $5,710,647 as of June 30, 2009. Due to adverse effect in the prior period, the Companys accounts receivable outstanding for over half year increased to $3,333,692 (equivalent to RMB22,771,419) as of June 30, 2009.

3.

INVENTORIES

Inventories as of June 30, 2009 and December 31, 2008, consisted of the following:

|                    |  |               |           |                   |   |           | 
|------------------- |  | ------------- | --------- | ----------------- | - | --------- | 
|                    |  | June 30,
2009 |           | December 31,
2008 |  
|                    |  | (Unaudited)   |           | (Audited)         |  
|Raw materials       |  | $             | 1,713,118 |                   | $ | 2,073,501 | 
|Work in process     |  |               | 168,033   |                   |   | 210,526   | 
|Finished goods      |  |               | 215,564   |                   |   | 427,459   | 
|Packaging and other |  |               | 19,813    |                   |   | 44,525    | 
|Total               |  | $             | 2,116,528 |                   | $ | 2,756,011 | 



4.

LOAN TO UNRELATED PARTY

Hanxin had prepaid RMB10 million as deposits to purchase the land use right from one of its major sales distributors in Shaanxi Province, Shaanxi Shuta Wood Products Co., Ltd. (Shaanxi Shuta). However, Hanxin terminated the agreement in August 2008 and had all deposits refunded in August and September 2008.

In 2008, Shaanxi Shuta opened cork retail chain stories dedicated to sell Hanxins products exclusively. Shaanxi Shuta incurred heavy losses because Hanxin could not achieve its 500,000 square meters floor and board production plan in 2008 and had delayed many purchase orders. In order to avoid losing a very important distribution channel and to assist Shaanxi Shuta to recover from this situation, Hanxin loaned RMB10 million (equivalent to $1,463,981) to Shaanxi Shuta for one year starting from October 27, 2008. This loan is non-interest bearing and unsecured.

5.

PROPERTY AND EQUIPMENT

As of June 30, 2009 and December 31, 2008, property and equipment consisted of the following:

|                               |  |                |  |               |           |                   |   |           | 
|------------------------------ |  | -------------- |  | ------------- | --------- | ----------------- | - | --------- | 
|                               |  |                |  | June 30,
2009 |           | December 31,
2008 |  
|                               |  | Estimated Life |  | (Unaudited)   |           | (Audited)         |  
|Building and improvement       |  | 27-35          |  | $             | 4,889,076 |                   | $ | 4,894,945 | 
|Manufacturing equipment        |  | 1-8            |  |               | 837,761   |                   |   | 838,766   | 
|Office furniture and equipment |  | 5              |  |               | 31,104    |                   |   | 31,141    | 
|Vehicle                        |  | 2-8            |  |               | 12,512    |                   |   | 12,527    | 
|Machinery improvement          |  | 3              |  |               | 80,518    |                   |   | 80,616    | 
|Subtotal                       |  |                |  |               | 5,850,971 |                   |   | 5,857,995 | 
|Less: Accumulated depreciation |  |                |  |               | 1,189,956 |                   |   | 1,044,366 | 
|Total                          |  |                |  | $             | 4,661,015 |                   | $ | 4,813,629 | 

For the six months ended June 30, 2009 and 2008, depreciation expenses amounted to $146,791 and $114,960, respectively.



8



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6.

DEPOSIT FOR PURCHASE OF FIXED ASSETS

Hanxin intended to purchase a factorys fixed assets through an unrelated agent who will do the negotiation for the Company, and both parties signed the Entrust Purchase Agreement on November 10, 2005. Hanxin had paid deposits $2,020,294 (equivalent to RMB 13,800,000) to the agent as of June 30, 2009, and the same deposit was valued at $2,022,719 (equivalent to RMB 13,800,000) as of December 31, 2008. The agency agreement has no firm commitment on the purchase but it states a maximum price of RMB 50,000,000 that the Company is willing to pay for the fixed assets. The deposit is fully refundable if the purchase does not close by September 30, 2009.

7.

DEPOSIT FOR ACQUISITION

Hanxin intended to acquire Sichuan Hanxin Cork Merchandises Co, Ltd. (SHCM), one of its cork raw material providers located in Sichuan Province China, and signed a strategic cooperation agreement with SHCM on March 26, 2007. The purchase price of SHCM shall not exceed $2,927,962 (RMB20 million) based upon the agreement. As of June 30, 2009, Hanxin had paid a $1,463,981 (equivalent to RMB10 millions) deposit to SHCM. Hanxin anticipates applying the whole deposited amount to payments for raw materials if the acquisition does not occur before the end of year 2009.

8.

INVESTMENT  AT COST

On June 28, 2005, the Company purchased a 12% equity interest of Shaanxi DeRong Technology Information Development Co. Ltd. (DeRong), a PRC corporation, for $2,049,573 (equivalent to RMB 14 million). DeRong owns a cork tree forest plantation in China. The investment is for long term and is stated at cost.

9.

INTANGIBLE ASSETS

The Company purchased the right to use a parcel of land for 40 years on September 27, 2001. The purchase price is being amortized over the term of the right. In addition, the company was assigned ownership of three patent rights from its major stockholder and Chairman, Mr. Fangshe Zhang, during the quarter ended June 30, 2008. These patents were assigned without any payment due to Mr. Zhang. These three patent rights are used as part of a vital technique for the production of the Companys products. The application and filing costs of these three patent rights were $4,199 (equivalent to RMB28,800). As of June 30, 2009 and December 31, 2008, intangible assets, less accumulated amortization consisted of the following:

|                               |  |               |         |                   |   |         | 
|------------------------------ |  | ------------- | ------- | ----------------- | - | ------- | 
|                               |  | June 30,
2009 |         | December 31,
2008 |  
|                               |  | (Unaudited)   |         | (Audited)         |  
|                               |  |               |         |                   |   |         | 
|Intangible assets              |  | $             | 208,082 |                   | $ | 208,332 | 
|Less: Accumulated amortization |  |               | 39,816  |                   |   | 37,154  | 
|Total                          |  | $             | 168,266 |                   | $ | 171,178 | 

For the six months ended June 30, 2009 and 2008, amortization expense amounted to $2,706 and $2,466 respectively.



9



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The amortization expenses for the next five years are as follows:



|     |            
|---- | -----------
|2010 | $     5,412
|2011 | 5,412      
|2012 | 5,412      
|2013 | 5,412      
|2014 | 5,412      
|     |            
|     |            



10.

LOAN PAYABLE

Loan payable as of June 20, 2009 and December 31, 2008 consisted of the following:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |                   |   |           | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | ----------------- | - | --------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | June 30,
2009 |             | December 31,
2008 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               | (Unaudited) |                   |   | (Audited) | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |                   |   |           | 
|On November 30, 2007, the Company obtained a short-term loan RMB3.9 million (equivalent at that time to $534,642 ) from Xian Xitaoyuan Credit Bank by pledging the Company's building in YuLerYuan with bank, The loan interest is 8.37 per month. The Company had paid principal RMB3.9 million back to bank on June 30, 2008. On the same day, the company borrowed RMB3 million (equivalent to $439,722 ) from the same bank with new interest rate 9.967 per month and new due date on June 30, 2009. This RMB3million loan had been fully paid off on June 29, 2009. |  | $             |            |                   | $ | 439,722   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               |             |                   |   |           | 
|Total Loan Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $             |            |                   | $ | 439,722   | 



11.

CONVERTIBLE NOTES

On June 4 and June 12, 2008, the Company consummated an offering of convertible promissory notes and common stock purchase warrants for aggregate gross proceeds of $700,000. The notes mature one (1) year from the date of issuance and bear interest at an annual rate of 18%, payable at maturity in USD. Upon the successful closing of an equity or convertible debt financing for a minimum of $2,000,000 ("Financing"), the promissory notes will be convertible into shares of common stock at a 50% discount to the price per share of Common Stock sold in the Financing. If a Financing is 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 interest payable regarding the convertible notes has been accrued and recorded as of June 30, 2009. However, the extension of due date for notes is still under negotiation as of August 15, 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.



10



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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.

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.

Per PRC Income Tax Law, any new foreign owned corporation is exempt from income tax for the first two years of existence, and then receives a 50% exemption of income tax for the next three years if it is a non high-tech corporation or 15% tax rate for corporation qualified by State Science and Technology Commission as "High Tech Manufacturing Enterprise" located in State "High Tech Zone" approved by China State Council. Hanxin is qualified as a High Tech Manufacturing Enterprise. Based on this regulation, Hanxin was exempt from income tax in year 2003 and 2004 and its income has been subject to a 15% tax starting from January 1, 2005. CIE is not High Tech Manufacturing Enterprise, thus its income is subject to 33% tax rate. Commencing from January 2008, based on the new regulation in the PRC, CIEs income is subject to 25% tax rate.

On June 30, 2009 and December 31, 2008, taxes payable consisted the following:

|                               |  |               |         |                   |   |         | 
|------------------------------ |  | ------------- | ------- | ----------------- | - | ------- | 
|                               |  | June 30,
2009 |         | December 31,
2008 |  
|                               |  | (Unaudited)   |         | (Audited)         |  
|                               |  |               |         |                   |   |         | 
|Value-added tax                |  | $             | 401,074 |                   | $ | 177,287 | 
|Corporate income tax provision |  |               | 124,192 |                   |   | 74,883  | 
|Local taxes and surcharges     |  |               | 29,197  |                   |   | 13,491  | 
|Franchise tax                  |  |               | 31,058  |                   |   | 9,558   | 
|Total                          |  | $             | 585,521 |                   | $ | 275,219 | 



The deferred income tax assets results from loss on disposition of fixed assets that are not deductible.



11



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The components of the provisions for income taxes were as follows:

|                                   |  |                               |         |           |   |         | 
|---------------------------------- |  | ----------------------------- | ------- | --------- | - | ------- | 
|                                   |  | For Six Months Ended June 30, |        
|                                   |  | 2009                          |         | 2008      |  
|                                   |  | (Unaudited)                   |         | (Audited) |  
|Current taxes:                     |  |                               |         |           |   |         | 
|Current income taxes in P.R. China |  | $                             | 183,886 |           | $ | 225,281 | 
|Deferred taxes valuation allowance |  |                               | 3,596   |           |   |        | 
|Total provision for income taxes   |  | $                             | 187,482 |           | $ | 225,281 | 



13.

DUE TO STOCKHOLDERS/OFFICERS

Amounts due to stockholders/officers are unsecured, non-interest bearing, and have not set repayment date. As of June 30, 2009 and December 31, 2008, the total net amounts due to the stockholders/officers were $177,486 and $177,699, respectively, which represented the net amounts lent by stockholders/officers to the Company.

14.

STOCKHOLDERS EQUITY

On August 9, 2005, the Company acquired Hanxin International in exchange for (i) 24,000,000 shares of the Companys common stock and (ii) 1,000 shares of the Companys Series A Preferred Stock, which were converted into 177,185,642 shares of the Companys common stock, without taking into effect of a reverse stock split as described below.

In November 2005, the Company filed and circulated to its shareholders the Information Statement which permitted the Company, among other things, to (i) amend its Articles of Incorporation to increase its authorized shares of common stock to 200,000,000 shares; (ii) approve one for six reverse split as to all outstanding shares of common stock of the Company, effective as to holders of record of shares of common stock on December 9, 2005, (iii) approve a stock option, SAR and stock bonus plan for the directors, officers, employees and consultants of the Company. A certificate of amendment officially increasing the authorized shares of common stock and approving the reverse stock split was filed with the State of Delaware on December 13, 2005.

On September 1, 2006, the 1,000 shares Series A preferred stock were converted into 29,530,937 shares of the Companys common stock. Subsequently, the Company issued additional 118,123 shares in October 2006 to reflect an under-issuance to a stockholder of the shares of common stock issuable upon conversion of the preferred stock As a result the total amount of issued and outstanding shares of the Companys common stock was 35,413,850 as of June 30, 2008.

In May 2008, the board of directors of the Company authorized, and on July 31, 2008 the Company issued, 150,000 shares of the Companys common stock to its attorney for services rendered. In June 2008, the board of directors of the Company authorized, and on August 14 2008 the Company issued, 100,000 shares of the Companys common stock to HAWK Associates, Inc (Hawk), its investor relations firm for services rendered pursuant to the agreement. Accordingly, the Company has 35,663,850 shares of issued and outstanding common stock as of August 15, 2009.

In June 2008, the Company was assigned ownership of three patent rights from its major shareholder, Mr. Fangshe Zhang. These patents were assigned without any payment due to Mr. Zhang. The application and filing costs of these three patents were RMB28,800 (equivalent to $4,199). In connection



12



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therewith, the Company recorded $4,199 of intangible assets, and same amount of additional paid in capital as of June 30, 2008.

15.

COMMITMENTS

The Company leases its office space and production land under operating lease agreements that are expiring on December 31, 2009 and October, 2047 respectively. The following is a schedule of future minimum rental land payments required under these operating leases as of June 30, 2009.

|                                       |  |        |        
|-------------------------------------- |  | ------ | -------
|For Six Months Ending June 30,         |  | Amount
|2010                                   |  | $      | 49,499 
|2011                                   |  |        | 17,568 
|2012                                   |  |        | 17,568 
|2013                                   |  |        | 17,568 
|2014                                   |  |        | 17,568 
|Thereafter                             |  |        | 585,592
|Total minimum rental payments required |  | $      | 705,363



Rent and properties maintenance expenses amounted to $58,283 and $85,615 for the three months ended June 30, 2009 and 2008, respectively.

The Company also leases three patent rights from its Chairman, Mr. Fangshe Zhang, under operating lease agreements that expire on April 16, 2011. The following is a schedule of future minimum rental payments required under these operating leases as of June 30, 2009.

|                                       |  |        |        
|-------------------------------------- |  | ------ | -------
|For Six Months Ending June 30,         |  | Amount
|2010                                   |  | $      | 351,355
|2011                                   |  |        | 279,132
|Total minimum rental payments required |  | $      | 630,487



Patent lease expenses amounted to $175,678 and $167,546 for the six months ended June 30, 2009 and 2008, respectively.

On June 15, 2008, the Company signed an agreement with Hawk to provide investor relations consulting and advisory services. The term of this agreement is effective through June 30, 2009. Hawk is paid a retainer fee of $7,500 per month and the payments are due at the beginning of each month. Hawk was also issued 100,000 restricted 144 shares of the Companys common stock on August 14, 2008.

16.

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

Financial Risks:

The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.

Concentrations Risks:

For the six months ended June 30, 20009 and 2008, none of the Companys customers accounted for more than 10% of its sales.



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Major Suppliers:

The Following summaries purchases of raw materials from major suppliers (each 10% or more of purchases):

|                              |  |                                |           |                     |   |                     |       
|----------------------------- |  | ------------------------------ | --------- | ------------------- | - | ------------------- | ------
|For Six Months Ended June 30, |  | Purchases from
Major Suppliers |           | Number of
Suppliers |   | Percentage
of Total
|2009                          |  | $                              | 1,991,743 |                     | 4 |                     | 56.73%
|2008                          |  | $                              | 2,343,356 |                     | 3 |                     | 35.94%



Geographical Risks:

Substantially all of the Companys assets and operations were in the PRC for the six months ended June 30, 2009 and 2008. Accordingly, the Companys business, financial condition and results of operations may be influenced by the political, economic and legal environment in PRC, and by the general state of the economy of PRC. The Companys operations in PRC are subject to special considerations and significant risks not typically associated with companies in the United States. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by, among other things, changes in the political, economic and social conditions in PRC, and by changes in governmental policies with respect to laws and regulations, changes in PRC's cork manufacture industry and regulatory rules and policies, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.

17.

SUBSEQUENT EVENT

On August 6, 2009, the Company engaged Global Arena Capital Corp. (GAC), for the period through May 31st, 2010, which period may be extended by mutual consent, to act as the Company's exclusive financial advisor .





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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following analysis of our consolidated financial condition and results of operations for the three and six months ended June 30, 2009 and 2008, should be read in conjunction with the consolidated financial statements, including footnotes, and other information presented in our annual report on Form 10-K as filed with the Securities and Exchange Commission on April 16, 2009.

Overview

The Company was incorporated under the laws of the State of Delaware on August 1, 1996. The Company was formed in connection with the merger acquisition of Kushi Macrobiotics Corp. (KMC) with American Phoenix Group, Inc. (APGI) in 1996. Prior to such acquisition, KMC had operated a business of marketing a line of natural foods (the Kushi Cuisine). This business was not successful and management determined that it would be in the shareholders interest for KMC to operate a different business. In August 2005, the Company, through Kushi Sub, Inc., a newly formed Delaware corporation and wholly-owned subsidiary of the Company ("Acquisition Sub") acquired all the ownership interest in Hanxin (Cork) International Holding Co., Ltd. ("Hanxin International"), a British Virgin Islands limited liability corporation, organized in September 2004. The Company acquired Hanxin International in exchange for 24,000,000 shares of common stock and 1,000 shares of the Series A Preferred Stock, which such shares converted into 29,530,937 shares of common stock. Subsequent to the merger and upon the conversion of the Series A Preferred Stock, the former shareholders of Hanxin International currently own 95% of the outstanding shares of the Company's common stock.

Kushi Sub, the surviving entity of the merger with Hanxin International, has no other business activities other than owning 100% of Xi'An Cork Investments Consultative Management Co., Ltd. ("Xi'An"), which owns 92% of Xian Hanxin Technology Co., Ltd. ("Hanxin"), incorporated in July 2002, both Xi'An and Hanxin are People's Republic of China (PRC) corporations. Most of the Companys operating and business activities are conducted through Hanxin.

On July 11, 2008, the Company's wholly owned subsidiary, Asia Cork Inc. was merged into its parent, the Company as approved by the Board of Directors of the Company pursuant to the Delaware General Corporation Law. The Company is the surviving company of the merger and Certificate of Incorporation is otherwise unchanged. The wholly-owned subsidiary was formed in July 2008 and had no material assets. The Certificate of Merger was filed with the Secretary of State of Delaware on July 11, 2008.

As permitted by Delaware General Corporation Law, the Company assumed the name of its wholly owned subsidiary following the merger and now operates under the name Asia Cork Inc. The Companys common stock is quoted on the Over the Counter Bulletin Board under the trading symbol AKRK.OB.

Business Overview

The Company, through its subsidiaries, engages in developing, manufacturing and marketing of cork wood floor, wall and decorating products.

Hanxin is a manufacturing company based in China, which produces cork-building material sold under the Hanxin brand name. Approximately 75% of Hanxin's products sold in year 2007 were to customers in China by our own sales persons, and domestic distributors and agents, with the remaining sales being made to customers in India, the United States, Germany and Japan through unrelated national distributors and agents. Our Chairman who is also a principal shareholder owns several cork processing technology related patents in China. Mr. Zhang leases three of these patents to Hanxin and has assigned three others to Hanxin.



15



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Foreign Exchange Considerations

Even though we are a U.S. company, because all of our operations are located in the PRC, we face certain risks associated with doing business in that country. These risks include risks associated with the ongoing transition from state business ownership to privatization, operating in a cash-based economy, dealing with inconsistent government policies, unexpected changes in regulatory requirements, export restrictions, tariffs and other trade barriers, challenges in staffing and managing operations in a communist country, differences in technology standards, employment laws and business practices, longer payment cycles and problems in collecting accounts receivable, changes in currency exchange rates and currency exchange controls. We are unable to control the vast majority of these risks associated both with our operations and the country in which they are located and these risks could result in significant declines in our revenues.

Because revenues from our operations in the PRC accounted for 100% of our consolidated net revenues, how we report net revenues from our PRC-based operations is of particular importance to understanding our financial statements. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," and are included in determining comprehensive net income or loss. For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income or loss.

The functional currency of our Chinese subsidiaries is the Chinese RMB, the local currency. The financial statements of the subsidiaries are translated to U.S. dollars using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not material during the periods presented. Until 1994, the RMB experienced a gradual but significant devaluation against most major currencies, including U.S. dollars, and there was a significant devaluation of the RMB on January 1, 1994 in connection with the replacement of the dual exchange rate system with a unified managed floating rate foreign exchange system. Since 1994, the value of the RMB relative to the U.S. Dollar has remained stable and has appreciated slightly against the U.S. dollar. Countries, including the United States, have argued that the RMB is artificially undervalued due to China's current monetary policies and have pressured China to allow the RMB to float freely in world markets.

On July 21, 2005, the PRC reported that it would have its currency pegged to a basket of currencies rather than just tied to a fixed exchange rate to the dollar. It also increased the value of its currency 2% higher against the dollar, effective immediately. If any devaluation of the RMB were to occur in the future, returns on our operations in China, which are expected to be in the form of RMB, will be negatively affected upon conversion to U.S. dollars. Although we attempt to have most future payments, mainly repayments of loans and capital contributions, denominated in U.S. dollars, if any increase in the value of the RMB were to occur in the future, our product sales in China and in other countries may be negatively affected.



16



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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in Note 1 to the consolidated financial statements. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition

The Company records property and equipment at cost. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which are from 2 to 35 years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. We review the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

The Company's revenues from the sale of products are recognized when the goods are shipped, title passes, the sales price to the customer is fixed and collectability is reasonably assured. Persuasive evidence of an arrangement is demonstrated via purchase order from customer, product delivery is evidenced by warehouse shipping log as well as bill of lading from the trucking company and no product return is allowed except defective or damaged products, the sales price to the customer is fixed upon acceptance of purchase order, there is no separate sales rebate, discounts, and volume incentives.



17



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RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THREE MONTHS ENDED JUNE 30, 2008

|                                                             |  |                                 |           |             |   |                      |   |   |          |   |          | 
|------------------------------------------------------------ |  | ------------------------------- | --------- | ----------- | - | -------------------- | - | - | -------- | - | -------- | 
|                                                             |  | For Three Months Ended June 30, |           |             |   |                      |   |  
|                                                             |  | 2009                            |           | 2008        |   |                      |   |   |          |  
|                                                             |  | (Unaudited)                     |           | (Unaudited) |   | (Decrease)/ Increase |  
|Revenues                                                     |  | $                               | 6,003,271 |             | $ | 6,366,384            |   | $ | (363,113 | ) | -5.70%   | 
|Cost of Goods Sold                                           |  |                                 | 3,861,118 |             |   | 4,173,021            |   |   | (311,903 | ) | -7.47%   | 
|Gross Profit                                                 |  |                                 | 2,142,153 |             |   | 2,193,363            |   |   | (51,210  | ) | -2.33%   | 
|Gross Profit Percentage                                      |  |                                 | 35.68%    |             |   | 34.45%               |   |   |          |   |          | 
|Operating Expenses                                           |  |                                 |           |             |   |                      |   |   |          |   |          | 
|Selling expenses                                             |  |                                 | 794,478   |             |   | 832,792              |   |   | (38,314  | ) | -4.60%   | 
|General and administrative expense                           |  |                                 | 148,313   |             |   | 341,248              |   |   | (192,935 | ) | -56.54%  | 
|Total Operating Expenses                                     |  |                                 | 942,791   |             |   | 1,174,040            |   |   | (231,249 | ) | -19.70%  | 
|Income From Operations                                       |  |                                 | 1,199,362 |             |   | 1,019,323            |   |   | 180,039  |   | 17.66%   | 
|Other Income (Expense)                                       |  |                                 |           |             |   |                      |   |   |          |   |          | 
|Interest expense, net                                        |  |                                 | (44,423   | )           |   | (19,835              | ) |   | (24,588  | ) | 123.96%  | 
|Other income (expense), net                                  |  |                                 | 27,775    |             |   | (29,177              | ) |   | 56,952   |   | -195.19% | 
|Total Other Expense                                          |  |                                 | (16,648   | )           |   | (49,012              | ) |   | 32,364   |   | -66.03%  | 
|Income Before Taxes                                          |  |                                 | 1,182,714 |             |   | 970,311              |   |   | 212,403  |   | 21.89%   | 
|Income Tax Provision                                         |  |                                 | 183,202   |             |   | 148,490              |   |   | 34,712   |   | 23.38%   | 
|Income Before Noncontrolling Interest                        |  |                                 | 999,512   |             |   | 821,821              |   |   | 177,691  |   | 21.62%   | 
|Less: Net income attributable to the noncontrolling interest |  |                                 | 78,936    |             |   | 60,146               |   |   | 18,790   |   | 31.24%   | 
|Net Income Attributable to Asia Cork Inc.                    |  | $                               | 920,576   |             | $ | 761,675              |   | $ | 158,901  |   | 20.86%   | 



Revenues

Entering the second quarter of 2009, our business gradually revived as the market recovered. For the three months ended June 30, 2009, our revenues were $6,003,271 as compared to $6,366,384 for the three months ended June 30, 2008, a decrease of $363,113 or 5.70%. The reason for the decrease is primarily due to the fact that adverse market condition for home and commercial renovation has been significantly adversely affected since the fourth quarter of 2008. However, as our revenue during the second quarter of 2009 accounted for 87% of our revenue during the first six months of 2009, we expect a continued revival of our business and growth in our revenue during the balance of 2009.

Cost of Sales and Gross Profit

For the three months ended June 30, 2009, cost of sales amounted to $3,861,118 or 64.32% of net revenues as compared to cost of sales of $4,173,021 or 65.55% of net revenues for the three months ended June 30, 2008. Gross profit for the three months ended June 30, 2009 was $2,142,153 or 35.68% of revenues, as compared to $2,193,363 or 34.45% of revenues for the three months ended June 30, 2008. The gross margin increased mainly as a result of slightly reduced manufacture costs in the second quarter of 2009, compared to the same quarter of 2008.

Operating Expenses



18



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For the three months ended June 30, 2009, total operating expenses were reduced to $942,791 by 20% or $231,249, compared to $1,174,040 for the three months ended June 30, 2008. This decrease was attributable to a decrease in selling expenses, freight costs, and commissions associated with our decreased revenue. Likewise, our general and administrative costs during the three months ended June 30, 2009, was reduced by 57% to $148,313, as compared to $341,248 during the same period of 2008. The decrease s was primarily attributable to decreases consulting fee, advisory fees and professional fee in the second quarter of 2009.

Other Income (expense)

During the three months ended June 30, 2009, we realized $27,775 of net other income, as compared to the net other expense of ($29,177) during the same period of 2008, an increase of $56,952 or 195.19%. The increase in the item of net other income is due to the rental income we realized from the rental of our entertainment facility. This rental income was offset by the franchise taxes accrued for the State of Delaware and the donation contribution made by the Company during the three months ended June 30, 2008 in the amount of $71,822 in connection with the earthquake in Sichuan province of PRC.

For the three months ended June 30, 2009, net interest expense was ($44,423) as compared to net interest expenses of ($19,835) for three months ended June 30, 2008, an increase of $24,588, or 123.96%. This increase was primarily attributable to convertible debt the Company issued in June 2008. Accordingly, more interest expenses had been accrued in the current quarter as compared to same period of last year. As a result, the net interest expenses in the second quarter 2009 had obviously increased as compared to net interest expenses in the second quarter 2008.

Income Tax

The income taxes increased by $34,712 to $183,202 for the three months ended June 30, 2009 compared to $148,490 for the three months ended June 30, 2008, an increase of 23.38%. This increase was primarily due to our increased income before taxes as a result of our reduced operating expense taxes in the second quarter of 2009. The Company's tax-exempt status ended as of December 31, 2004. Hanxin has been subject to a 15% corporate income tax starting from 2005. CIE is subject to 33% and 25% corporate income tax before and after January 1, 2008, respectively.

Net Income

Because of the improved market conditions and our efforts to reduce the operating expenses, we realized $920,576 in net income in the second quarter of 2009, an increase of $158,901 or 21% from $761,675 during the same period of 2008. Should the market for our products continues to be recovered, we expect our net income to improve during the balance of 2009.



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SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO SIX MONTHS ENDED JUNE 30, 2008

|                                          |  |                               |           |             |   |                      |   |   |            |   |         | 
|----------------------------------------- |  | ----------------------------- | --------- | ----------- | - | -------------------- | - | - | ---------- | - | ------- | 
|                                          |  | For Six Months Ended June 30, |           |             |   |                      |   |  
|                                          |  | 2009                          |           | 2008        |   |                      |   |   |            |  
|                                          |  | (Unaudited)                   |           | (Unaudited) |   | (Decrease)/ Increase |  
|                                          |  |                               |           |             |   |                      |   |   |            |   |         | 
|Revenues                                  |  | $                             | 6,905,775 |             | $ | 8,882,729            |   | $ | (1,976,954 | ) | -22.26% | 
|Cost of Goods Sold                        |  |                               | 4,550,705 |             |   | 5,856,120            |   |   | (1,305,415 | ) | -22.29% | 
|Gross Profit                              |  |                               | 2,355,070 |             |   | 3,026,609            |   |   | (671,539   | ) | -22.19% | 
|Gross Profit Percentage                   |  |                               | 34.10%    |             |   | 34.07%               |   |   |            |   |         | 
|Operating Expenses                        |  |                               |           |             |   |                      |   |   |            |   |         | 
|Selling expenses                          |  |                               | 919,643   |             |   | 1,112,086            |   |   | (192,443   | ) | -17.30% | 
|General and administrative expense        |  |                               | 252,755   |             |   | 414,717              |   |   | (161,962   | ) | -39.05% | 
|Total Operating Expenses                  |  |                               | 1,172,398 |             |   | 1,526,803            |   |   | (354,405   | ) | -23.21% | 
|Income From Operations                    |  |                               | 1,182,672 |             |   | 1,499,806            |   |   | (317,134   | ) | -21.15% | 
|Other Income (Expense)                    |  |                               |           |             |   |                      |   |   |            |   |         | 
|Interest expense, net                     |  |                               | (57,044   | )           |   | (32,388              | ) |   | (24,656    | ) | 76.13%  | 
|Other income, net                         |  |                               | 52,500    |             |   | 4,966                |   |   | 47,534     |   | 957.19% | 
|Total Other Expense                       |  |                               | (4,544    | )           |   | (27,422              | ) |   | 22,878     |   | -83.43% | 
|Income Before Taxes                       |  |                               | 1,178,128 |             |   | 1,472,384            |   |   | (294,256   | ) | -19.99% | 
|Income Tax Provision                      |  |                               | 187,482   |             |   | 225,281              |   |   | (37,799    | ) | -16.78% | 
|Income Before Noncontrolling Interest     |  |                               | 990,646   |             |   | 1,247,103            |   |   | (256,457   | ) | -20.56% | 
|v                                         |  |                               | 75,901    |             |   | 95,246               |   |   | (19,345    | ) | -20.31% | 
|Net Income Attributable to Asia Cork Inc. |  | $                             | 914,745   |             | $ | 1,151,857            |   | $ | (237,112   | ) | -20.59% | 



Revenues

Our business revived during the six months ended June 30, 2009, despite the decreased revenue of $6,905,775 during the six months ended June 30, 2009,compared to $8,882,729 during the six months ended June 30, 2008, .Our revenue for the second quarter of 2009 was more than six times of the revenue during the first quarter of 2009 as general market conditions improved.

Cost of Sales and Gross Profit

For the six months ended June 30, 2009, cost of sales amounted to $4,550,705 or 65.9% of net revenues as compared to cost of sales of $5,856,120 or 65.93% of net revenues for the six months ended June 30, 2008. Gross profit for the six months ended June 30, 2009 was $2,355,070 or 34.1% of revenues, as compared to $3,026,609 or 34.07% of revenues for the six months ended June 30, 2008. The gross margin for the six months ended June 30, 2009 is almost same as the same period of 2008.

Operating Expenses

For the six months ended June 30, 2009, total operating expenses were $1,172,398 as compared to $1,526,803 for the six months ended June 30, 2008, an decrease of $354,405 or 23.21%. This decrease was attributable to a decrease in selling expenses, freight costs, and commissions associated with our decreased revenue. Also, the decrease in general and administrative costs was primarily attributable to decreases consulting fee, advisory fees and professional fee for the six months ended June 30. 2009.



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Other Income (expense)

For the six months ended June 30, 2009, other income, net, amounted to $52,500 as compared to other income, net of $4,966 for the six months ended June 30, 2008, an increase of $47,534 or 957.19%. Other income for the six months ended June 30, 2009 and 2008 is related to the income received from the rental of our entertainment facility. This rental income was primarily offset by the franchise tax accrued for the State of Delaware and the donation contribution made by the Company during the three months ended June 30, 2008 in the amount of $71,822 and which such donation was made in connection with the earthquake in Sichuan PRC.

For the six months ended June 30, 2009, net interest expense was $57,044 as compared to net interest expenses of $32,388 for six months ended June 30, 2008, a increase of $24,656, or 76.13%. This increase was primarily attributable to the Company acquiring convertible debt in June 2008. Accordingly, more interest expenses had been accrued for the first six months of 2009 as compared to same period of 2008

Income Tax

The income taxes decreased by $37,799 to $187,482 for the six months ended June 30, 2009 compared to $225,281 for the six months ended June 30, 2008, a decrease of 16.78%. This decrease was primarily due to a decreased gross profit for the first six months of 2009 as compared to the same period of last year. . The Company's tax-exempt status ended as of December 31, 2004. Hanxin is subject to a 15% corporate income tax starting from year 2005. CIE is subject to 33% and 25% corporate income tax before and after January 1, 2008, respectively.

Net Income

Our net income during the six months ended June 30, 2009 was $914,745, compared to $1,151,857. Such a decrease was due to our dropped revenues during the six months ended June 30, 2009, compared to the same period of 2008. As the market recovers, we expect our revenue to revive as it did in the three months ended June 30, 2009 compared to the three months ended March 31, 2009.

LIQUIDITY AND CAPITAL RESOURCES

Operating working capital was $9,854,000 at June 30, 2009, an increase of $ 1,130,726 or 13% compared to $8,723,274 at December 31, 2008. The increase was primarily due to an increase of $474,119 in cash and equivalents and an increase of $754,642 in account receivable, respectively, as of June 30, 2009.

Cash provided by operating activities was $912,658 for the six months ended June 30, 2009 as compared to ($330,962) used in for the six months ended June 30, 2008. This increase was primarily because we spent more money for inventories for the first six months of 2008 as compared to the same period of current year.

Cash used in financing activities was $439,722 for the six months ended June 30, 2009, compared to net cash provided by financing activities of $568,787 in the same period 2008. The financing cash inflow increase for the first six months of 2008 was primarily due to the convertible notes we issued 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 bear interest at an annual rate of 18%, payable at maturity in USD. Upon the successful closing of an equity or convertible debt financing for a minimum of $2,000,000 ("Financing"), the promissory notes will be convertible into shares of common stock at a 50% discount to



21



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the price per share of Common Stock sold in the Financing. Since the Financing did not occur within 12 months of the date of the promissory notes, each investor has the option to be paid the principal and interest due under the promissory note or convert the note into shares of common stock at a conversion price of $0.228 per share. The promissory notes are secured by Common Stock pledged by Pengcheng Chen, our Chief Executive Officer and Fangshe Zhang, our Chairman. However, at the present time we do not have sufficient cash or cash equivalents to repay the promissory notes should the investors demand payment upon maturity. The Company is seeking an extension of the maturity dates of the promissory notes and alternate financing, but there is no assurance the extension or the alternate financing will be obtained.

On November 10, 2005, the Company signed the Entrust Purchase Agreement to purchase a factorys fixed assets through an unrelated agent. The Company has paid deposits of $2,020,294 (equivalent to RMB 13,800,000) to the agent as of June 30, 2009. The agency agreement has no firm commitment on the purchase but it states a maximum price of RMB 50,000,000 that the Company is willing to pay for the fixed assets. The deposit is fully refundable if the purchase does not close by September 30, 2009.

With approximately $9.9 million of net working capital (total current assets less total current liabilities) and positive cash inflow from operations as of June 30, 2009, we believe we will have sufficient resources to finance our operations for the coming year.

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



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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.



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PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

None

Item 1A

Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

We have not sold any equity securities during the six month period ended June 30, 2009.

Item 3.

Defaults Upon Senior Securities

There were no defaults upon senior securities during the six month period ended on June 30, 2009.

Item 4.

Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the six month period ended on June 30, 2009.

Item 5.

Other Information

None

Item 6.

Exhibits

|               |  |                                                                                                                  
|-------------- |  | -----------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                      
|               |  |                                                                                                                  
|31.1           |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.          
|               |  |                                                                                                                  
|31.2           |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.          
|               |  |                                                                                                                  
|32.1           |  | Certification of Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|               |  |                                                                                                                  
|32.2           |  | Certification of Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 







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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused his report to be signed on its behalf by the undersigned, thereunto duly authorized.



|       |                 |  |                |                                        
|------ | --------------- |  | -------------- | ---------------------------------------
|       |                 |  | ASIA CORK INC.
|       |                 |  |                |                                        
|       |                 |  |                |                                        
|Dated: | August 19, 2009 |  | By:            | /s/ Pengcheng Chen                     
|       |                 |  |                | Pengcheng Chen, Chief Executive Officer
|       |                 |  |                |                                        
|       |                 |  |                |                                        
|       |                 |  | By:            | /s/ Yi Tong                            
|       |                 |  |                | Yi Tong, Chief Financial Officer