United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

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

For the transition period from:

Commission file number 000-30115

ASIA CORK INC.

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

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

3rd Floor, A Tower of Chuang Xin

Information Building

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

(Address of principal executive offices, including zip code)

(011) 86-13301996766

(Issuer’s telephone number, including area code)

_____________________________________

(Former Address, if changed since last report)

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

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

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

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

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: On November 12, 2010 there were 35,663,850 shares of Common Stock, par value $.0001 per share, outstanding.

ASIA CORK INC.

FORM 10-Q

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

INDEX

		Page
PART I - FINANCIAL INFORMATION
Item 1:-	Financial Statements	1
Item 2:-	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3:-	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4:-	Controls and Procedures	42
PART II - OTHER INFORMATION
Item 1:-	Legal Proceedings	43
Item 1A:-	Risk Factors	43
Item 2:-	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3:-	Default upon Senior Securities	43
Item 4:-	Removed and Reserved	43
Item 5:-	Other Information	43
Item 6:-	Exhibits	44

PART I 

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

Asia Cork Inc. and Subsidiaries

Consolidated Balance Sheets

		September 30, 2010		December 31, 2009
		(Unaudited)		(Audited)
Assets:
Current Assets
	Cash and equivalents	$	1,636,889	$	49,949
	Accounts receivable, net of allowance for doubtful accounts of $499,200 and $269,259, respectively		9,511,618		5,176,239
	Inventories		9,332,194		5,971,339
	Advance to suppliers		1,839,855		2,468,733
	Loan to unrelated party		-		29,295
	Deferred income taxes assets		10,879		3,064
	Prepayments and other current assets		170,929		130,065
	Total Current Assets		22,502,364		13,828,684
Property and Equipment - Net			2,219,047		2,339,307
Construction in Progress			-		-
Deposit for Purchase of Fixed Assets			-		2,021,380
Deposit for Acquisition			-		1,362,234
Non-Refundable Deposit for Purchase of Land Use Right			1,494,509		1,464,768
Investment Properties - Net			3,836,647		3,139,686
Investment - At Cost			2,092,313		2,050,675
Intangible Assets- Net			3,574		3,742
Deferred Income Tax Assets			87,973		54,591
	Total Assets		32,236,427		26,265,067
Liabilities and Equity:
Liabilities:
Current Liabilities
	Accounts payable and accrued expenses		2,304,141		1,532,469
	Loan payable		-		215,321
	Convertible note, net		700,000		700,000
	Customer deposit		223,471		10,112
	Taxes payable		1,071,805		534,393
	Due to stockholders/officers		181,187		177,582
	Other current liabilities		146,462		22,528
	Total Current Liabilities		4,627,066		3,192,405
	Total Liabilities		4,627,066		3,192,405
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		4,485,446		4,485,446
	Additional paid-in capital  stock warrant		279,386		279,386
	Reserve funds		3,406,136		2,808,865
	Retained earnings		13,808,249		10,740,044
	Accumulated other comprehensive income		3,209,301		2,657,741
	Total Asia Cork Inc. Stockholders' Equity		25,192,084		20,975,048
Noncontrolling Interest			2,417,277		2,097,614
	Total Equity		27,609,361		23,072,662
	Total Liabilities and Equity	$	32,236,427	$	26,265,067

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

1

Asia Cork Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

		For The Three Months Ended September 30,					For The Nine Months Ended September 30,
		2010		2009			2010			2009
		(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)
Revenues		$	11,002,498	$	10,151,002		$	22,436,245		$	17,056,777
Cost of Goods Sold			7,552,944		6,481,710			15,744,727			11,032,415
Gross Profit			3,449,554		3,669,292			6,691,518			6,024,362
Operating Expenses
Selling expenses			615,035		1,555,095			1,205,358			2,470,208
Bad debt			61,897		248,574			220,666			253,104
Research & development costs			309		73,181			110,187			73,181
General and administrative expense			79,425		154,946			493,970			427,381
Total Operating Expenses			756,666		2,031,796			2,030,181			3,223,874
Income From Operations			2,692,888		1,637,496			4,661,337			2,800,488
Other Income (Expense)
Interest income (expense), net			13,065		(41,752	)		(72,269	)		(259,117	)
Other income , net			32,890		26,260			98,134			78,760
Total Other Income (Expense)			45,955		(15,492	)		25,865			(180,357	)
Income from Continuing Operations Before Taxes			2,738,843		1,622,004			4,687,202			2,620,131
Provision for Income Taxes			407,187		293,830			702,063			477,030
Net Income Before Noncontrolling Interest			2,331,656		1,328,174			3,985,139			2,143,101
Less: Net  income attributable to the noncontrolling interest			185,440		105,714			319,663			179,190
Net Income Attributable to Asia Cork Inc.		$	2,146,216	$	1,222,460		$	3,665,476		$	1,963,911
Earnings Per Share - Basic and Diluted:
	- Basic	$	0.06	$	0.03		$	0.10		$	0.06
	- Diluted:	$	0.05	$	0.03		$	0.09		$	0.06
Weighted Common Shares Outstanding - Basic and Diluted
	- Basic		35,663,850		35,663,850			35,663,850			35,663,850
	- Diluted:		40,269,113		38,734,025			40,269,113			38,734,025

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

2

Asia Cork Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	For Nine Months Ended September 30,
	2010		2009
	(Unaudited)		(Unaudited)
Net Income Before Noncontrolling Interest	$	3,985,139	$	2,143,101
Other Comprehensive (Loss) Income:
Foreign Currency Translation Income (Loss)		551,560		(9,141	)
Comprehensive Income	$	4,536,699	$	2,133,960

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

3

Asia Cork Inc. and Subsidiaries

Consolidated Statements of Cash Flows  (Unaudited)

	For the Nine Months Ended September 30,
	2010			2009
	(Unaudited)			(Unaudited)
Cash Flows From Operating Activities
Net  Income	$	3,665,476		$	1,963,911
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities
Depreciation and amortization		254,462			223,137
Bad debt adjustment		220,666			253,104
Losses on disposal of inventories		1,980			-
Net income attributable to noncontrolling interest		319,663			179,190
Deferred income tax benefits		(39,347	)		5,326
Consulting fees adjusted from deferred	-				19,680
Interest expenses for discount on convertible note	-				130,649
Changes in operating assets and liabilities:
Accounts receivable		(4,366,101	)		(623,217	)
Inventories		(3,177,121	)		(4,556,205	)
Advance to suppliers		665,492			1,759,846
Prepayments and other current assets		(37,462	)		(299,182	)
Accounts payable and accrued expenses		2,088,053			950,760
Customer Deposit		208,912			600,055
Taxes payable		516,083			852,225
Other current liabilities		121,019			(4,234	)
Net Cash Provided by Operating Activities		441,775			1,455,045
Cash Flows From Investing Activities
Proceeds from withdraw deposit for purchase of fixed assets		2,021,380			-
Proceeds from withdraw deposit for acquisition		-			102,601
Payment for purchase of equipment		(724,061	)		(811,563	)
Net Cash Provided by(Used in) Investing Activities		1,297,319			(708,962	)
Cash Flows From Financing Activities
Proceeds from the loan		29,295			215,343
Repayment to the loan		(215,321	)		(439,475	)
Net Cash Used in Financing Activities		(186,026	)		(224,132	)
Net  Increase in Cash and Equivalents		1,553,068			521,951
Effect of Exchange Rate Changes on Cash		33,872			1,798
Cash and Equivalents at Beginning of Period		49,949			23,605
Cash and Equivalents at End of Period	$	1,636,889		$	547,354
SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION
Interest expenses paid	$	7,968		$	27,843
Income taxes paid	$	634,275		$	134,505
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Offset debt by  the deposits of acquisition	$	1,362,234		$	-

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

4

Asia Cork Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

1.   BASIS OF PRESENTATION

a)   Interim financial statements:

The unaudited consolidated financial statements of Asia Cork Inc.(f/k/a Hankersen International Corp.) 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, 2009 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 unaudited 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.) (the "Company") was incorporated on August 1, 1996, under the laws of the State of Delaware. Until August 2005, the Company had no operations and the sole purpose of the Company was to locate and consummate a merger or acquisition with a private entity.

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

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

5

In August 2005, the Company, through Kushi Sub, Inc., a newly formed Delaware corporation and wholly-owned subsidiary of the Company ("Acquisition Sub") acquired all the ownership interest in Hanxin (Cork) International Holding Co., Ltd. ("Hanxin International"), a British Virgin Islands limited liability corporation, organized in September 2004. The Company acquired Hanxin International in exchange for shares of common stock and shares of the Series A Preferred Stock of the Company. The capitalizations are described in further detail in Note 18 to the accompanying consolidated financial statements.

Subsequent to the merger and upon the conversion of the Series A Preferred Stock, the former shareholders of Hanxin International will own 95% of the outstanding shares of the Company's common stock. As a result of the ownership interests of the former shareholders of Hanxin International, for financial statement reporting purposes, the merger was treated as a reverse acquisition, with Hanxin International deemed the accounting acquirer and Kushi deemed the accounting acquiree. Historical information of the surviving company is that of Hanxin International.

Hanxin International has no other business activities but owns 100% of Xi'An Cork Investments Consultative Management Co., Ltd. ("Xi'An"), which owns 92% of Xian Hanxin Technology Co., Ltd. ("Hanxin"), incorporated in July 2002, both Xi'An and Hanxin are People's Republic of China (“PRC”) corporations. Most of the Company’s activities are conducted through Hanxin.

During the year ended December 31, 2005, Hanxin acquired a 75% equity interest of Cork Import and Export Co. Ltd. (“CIE”), a PRC corporation engaged in the cork trading business.

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 2010 and 2009 include the estimated useful lives and fair values of the assets. Actual results could differ from those estimates.

d)   Revenue recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company's revenues from the sale of products are recognized when reception and inspection of goods are finalized by clients, 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 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.

6

The Company recognizes its revenues net of value-added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of its products at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases.

e)   Reclassifications

Certain amounts reflected in the consolidated financial statements for the year ended December 31, 2009 have been reclassified to conform to the presentation for the nine months ended September 30, 2010.

f)   Stock-Based Compensation

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.  The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received.  Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.  The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

g)   Basic and diluted net income per share

The Company accounts for net income per common share in accordance with ASC 260, “Earnings per Share” (“EPS”). ASC 260 requires the disclosure of the potential dilution effect of exercising or converting securities or other contracts involving the issuance of common stock. Basic net income per share is determined based on the weighted average number of common shares outstanding for the period.  Diluted net income per share is determined based on the assumption that all dilutive convertible shares and stock options were converted or exercised into common stock.

h)   Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The functional currencies of the Company's subsidiaries are local currencies, primarily the Chinese Renminbi. The financial statements are translated into U.S. dollars using period-end rates of exchange for assets and liabilities and average rates of exchange for the period for revenues and expenses. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in other comprehensive income or loss.

7

i)   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 ASC 740 - 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.

The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), codified in FASB ASC Topic 740, on January 1, 2007. As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48, and the Company recognized no material adjustments to liabilities or stockholders equity. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.  Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in general and administrative expenses in the statements of income. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.   At September 30, 2010 and December 31, 2009, the Company did not take any uncertain positions that would necessitate recording of tax related liability. 

8

j)   Non-Controlling Interest

Effective January 1, 2009, the Company adopted FASB ASC Topic 810, “Consolidation,” which established new standards governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability (as was previously the case), that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.

The net income (loss) attributed to the NCI was separately designated in the accompanying statements of operations and comprehensive income. Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is attributed to those interests. The NCI shall continue to be attributed its share of losses even if that attribution results in a deficit NCI balance.

k)   Recent Accounting Pronouncements

In April 2010, the FASB issued Accounting Standard Update 20-10-17, “Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition” orASU 2010-17. This update provides guidance on the recognition of revenue under the milestone method, which allows a vendor to adopt an accounting policy to recognize all of the arrangement consideration that is contingent on the achievement of a substantive milestone (milestone consideration) in the period the milestone is achieved. The pronouncement is effective on a prospective basis for milestones achieved in fiscal years and interim periods within those years, beginning on or after June 15, 2010. The adoption of this ASU does not have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

9

In March 2010, the FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit Derivatives. Embedded credit-derivative features related only to the transfer of credit risk in the form of subordination of one financial instrument to another are not subject to potential bifurcation and separate accounting, as clarified by recently issued FASB guidance. Other embedded credit-derivative features are required to be analyzed to determine whether they must be accounted for separately. This update provides guidance on whether embedded credit-derivative features in financial instruments issued by structures such as collateralized debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and separate accounting. The guidance is effective at the beginning of a company’s first fiscal quarter beginning after June 15, 2010. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

In March 2010, the FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This update defers the effective date of the amendments to the consolidation requirements made by FASB Statement 167 to a reporting entity’s interest in certain types of entities. The deferral will mainly impact the evaluation of reporting enterprises’ interests in mutual funds, private equity funds, hedge funds, real estate investment entities that measure their investment at fair value, real estate investment trusts, and venture capital funds. The ASU also clarifies guidance in Statement 167 that addresses whether fee arrangements represent a variable interest for all service providers and decision makers. The ASU is effective for interim and annual reporting periods in fiscal years beginning after November 15, 2009. The adoption of this ASU does not have a material impact on the Company’s consolidated financial statements.

On February 25, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09 Subsequent Events Topic 855, “Amendments to Certain Recognition and Disclosure Requirements,” effective immediately. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of US GAAP. The FASB believes these amendments remove potential conflicts with the SEC’s literature. Subsequent events have been evaluated through the date the financial statements were issued.

2.   ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company generally provides its major customers with short term credit pursuant to which the customers are required to make payment between three months and six months after delivery, depending on the customer’s payment history. Commencing from the second quarter of 2010, the payment to the Company by its major customers was extended to one year in order to expand its revenues.  For the nine months ended September 30, 2010  the total revenues resulted from a combination of increased orders by existing and new clients as the Company continued to successfully increase sales to customers and expand its customer base, the Company’s accounts receivable balance increased significantly as of September 30, 2010. As of September 30, 2010 the accounts receivable balance was $10,010,818 (equivalent to RMB66,983,983).

10

The accounts receivable amounts included in the consolidated balance sheets as of September 30, 2010 and December 31, 2009 were as follows:

	September 30, 2010		December 31, 2009
	(Unaudited)		(Audited)
Shaanxi Shuta Cork Products Co., Ltd	$	756,286	$	478,940
Distributors who had owed the Company more than
USD149,451 (equivalent to RMB1 million)		5,187,785		1,951,810
Distributors or Customers who had owed the Company
equal or less than USD149,451 (equivalent to RMB1 million)		4,066,747		3,014,748
Sub-total		10,010,818		5,445,498
Less: Allowance for doubtful accounts		499,200		269,259
Accounts receivable, net	$	9,511,618	$	5,176,239

The total amounts sold to the customers who had a balance of accounts receivable more than $149,451 (equivalent to RMB1 million) were $20,021,878 and $3,849,557 for the nine months ended September 30, 2010 and 2009, respectively. They represented 89% and23 % of total sales in the nine months ended September 30, 2010 and 2009. Except for Sichuan Hanxin, none of the customers accounted for more than 10% of total sales for the nine months ended September 30, 2010 and 2009, respectively.

The following is a summary of the status of allowance for doubtful accounts as of September 30, 2010 and 2009

Period	Amount		Period	Amount
As of January 1, 2010	$	269,259	As of January 1, 2009	$	23,787
As of March 31,2010		265,789	As of March 31,2009		22,940
As of June 30, 2010		430,875	As of June 30, 2009		28,290
As of September 30, 2010		499,200	As of September 30, 2009		277,100

The Company uses the allowance method to estimate the uncollectible portion of its account receivables. Based on the percentage of outstanding receivable approach, the Company should recorded bad debt expense in the debit and the related credit to the allowance account at closing day. The Company’s subsidiary, Hanxin maintains a reserve for uncollectible accounts of 0.5% of accounts receivable. During the third quarter of 2009, the Company increased the amount of its reserve from 0.5% to 5.0% of accounts receivable due to an increase in accounts receivable from major customers as well as new customers. Commencing the second quarter of 2010, the payment to the Company by its major customers was extended to one year in order to expand its revenues. As a result, the allowance for doubtful account increased significantly as of September 30, 2010.

11

Accounts receivable aging as of September 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010		December 31, 2009
	(Unaudited)		(Audited)
Less than 90 days	$	6,184,104	$	3,778,740
91days-180days		2,755,223		1,606,436
181days-365days		1,071,491		-
More than 365days		-		60,322
Total	$	10,010,818	$	5,445,498

The Company’s accounts receivable with ages of less than 90 days represented approximately 62% and 69% of the total receivables as of September 30, 2010 and December 31, 2009, respectively

Accounts receivable turnover for the nine months ended September 30, 2010 and 2009 consisted of the following:

	For The Nine Months Ended September 30,
	2010		2009
Accounts receivable turnover		1.62		1.33

Since there were significantly increased credit sales, and the increased credit sales amounts were significantly greater than the average accounts receivable increased amount for the nine months ended September 30, 2010 as compared to the same period in 2009, the accounts receivable turnover figure for the nine months ended September 30, 2010 was greater than the turnover in the same period of 2009.

3.   INVENTORIES

The barks and wood particles are the primary raw materials utilized to manufacture cork planks. The wood particles consist of grinded barks.  During the course of manufacture, the Company makes use of reproducible oak barks. Since the growth cycle of oak barks takes long periods of time, the Company generally purchases barks and wood particles in advance in order to ensure production. Moreover, the barks are usually picked in autumn.  In order to have sufficient raw materials, the Company purchased a significant amount of barks and wood particles as of September 30, 2010.

12

On October 15, 2009, in order to expand output, the Company entered into an agreement with Sichuan Hanxin Cork Merchandises Co, Ltd. (“Sichuan Hanxin”) to build a production line for manufacturing cork floor planks in Sichuan Province.  Pursuant to the agreement, the Company would provide a set of production equipment, prepay raw materials, provide secondary raw materials to Sichuan Hanxin and have the exclusive right to sell the cork floor products produced from this production line. Sichuan Hanxin would provide the workshop and supplementary equipment.  Sichuan Hanxin shall be responsible for the production of cork floor products in accordance with the quality specifications and standards set by the Company. Therefore, in order to fulfill the agreement, the Company purchased a significant amount of secondary raw materials as of December 31, 2009

In January 2010, the Company entered into a sales agreement with Sichuan Hanxin to sell secondary raw materials in amount of $1,391,133 (equivalent to RMB 9,468,901). Pursuant to the agreement, Sichuan Hanxin purchased the secondary raw materials to manufacture cork floors products for the Company. As of September 30, 2010, Sichuan Hanxin paid $1,391,133 to the Company for the raw materials it purchased. See more information in Note 4.

Inventories as of September 30, 2010 and December 31, 2009, consisted of the following:

			September 30, 2010			December 31, 2009
			(Unaudited)			(Audited)
Raw materials
	Tree skins		$	1,084,760		$	2,026,925
	Wood Particles			12,422			1,097,599
	Secondary raw materials			3,751,242			1,639,893
	Other raw materials			-			29,188
	Subtotal			4,848,424			4,793,605
Work in progress				1,964,106			202,495
Finished goods				2,092,091			961,765
Packaging and other				427,573			13,474
		Total	$	9,332,194		$	5,971,339

Inventories turnover for the nine months ended September 30, 2010 and 2009 consisted of the following:

	For The Nine Months Ended September 30,
	2010		2009
Inventory turnover		2.40		2.12

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In order to ensure productions in the future, inventories of significant raw materials increased as of September 30, 2010 as compared to the same period in 2009, and the total cost of goods sold was significantly more than the average inventories for the nine months ended September 30, 2010 as compared to the same period of 2009. Therefore, the inventories turnover figure for the nine months ended September 30, 2010 was more than the amount in the same period of 2009.

4.   SPECIAL TRANSACTIONS TO SICHUAN HANXIN

During the nine months ended September 30, 2010, the Company sold secondary raw materials to Sichuan Hanxin. The amount of sales listed below:

	For The Nine Months Ended September 30,
	2010		2009
	(Unaudited)		(Unaudited)
Total revenues	$	22,436,245	$	17,056,777
Revenues from Sichuan Hanxin		1,189,002		-
Total revenues excluded Sichuan Hanxin	$	21,247,243	$	17,056,777

The general VAT tax rate of 17% was applicable by the Company for nine months ended September 30, 2010 and 2009. The total revenues were represented in the amount excluding VAT, whereas, the accounts receivable were represented in the amount including VAT.   In addition, the functional currencies of the Company’s PRC subsidiaries are Chinese Yuan and the accounts receivable were translated into U.S dollars by using period-end rates whereas the total revenues were translated into U.S dollars by using average rates.

5.   ADVANCE TO SUPPLIERS

The supply of cork raw material is our basis of production. In order to acquire sufficient tree skins and ensure production, the Company generally signs purchase agreements with unrelated parties at the beginning of every year.  Pursuant to the agreements, the Company is required to pay its suppliers in advance. As of September 30, 2010, most of these advances were outstanding for less than one year.  The Company did not incur losses in connection with advances to suppliers as of September 30, 2010.  As such, the Company has not recorded an allowance for advances to suppliers for the nine months ended September 30, 2010, and the net amount of advances to suppliers was $1,839,855 as of September 30, 2010 and $2,468,733 as of December 31, 2009.

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6.   LOAN TO UNRELATED PARTY

In September 2009 the Company made an unsecured loan to Xian Tianlun Bath Co., Ltd (“Xian Tianlun”) in the amount of RMB 0.2 million (equivalent to $29,295).  This loan matures on September 26, 2010 and accrues interest at a rate of 7% per year. As of September 30, 2010, this loan had been repaid fully.

7.   PROPERTY AND EQUIPMENT-NET

As of September 30, 2010 and December 31, 2009, property and equipment consisted of the following:

			September 30, 2010		December 31, 2009
	Estimated Life		(Unaudited)		(Audited)
Buildings and improvements		30-35	$	1,583,092	$	1,551,588
Manufacturing equipments		1-8		1,631,190		1,598,728
Office furniture and equipments		5		31,752		31,120
Vehicle		8		12,773		12,518
Machinery improvements		3		82,197		80,563
Subtotal				3,341,004		3,274,517
Less: Accumulated depreciation				1,121,957		935,210
Total			$	2,219,047	$	2,339,307

For the nine months ended September 30, 2010 and 2009, depreciation expenses amounted to $164,912 and $133,926 respectively.

8.   DEPOSIT FOR PURCHASE OF FIXED ASSETS

Hanxin intended to purchase a factory’s fixed assets through an unrelated agent who handled the negotiations for the Company, and both parties signed the Entrust Purchase Agreement on November 10, 2005. Hanxin had paid deposits $2,021,380 (equivalent to RMB 13,800,000) as of December 31, 2009. The agency agreement has no firm commitment on the purchase but it stated a maximum price of RMB 50,000,000 that the Company is willing to pay for the fixed assets. Due to the dissension within the factory’s creditors, the agent could not close this purchase agreement on time. As a result, Hanxin had a supplementary agreement with this agent on September 27, 2009. Pursuant to the terms of such agreement, the agreement was extended and as a result, Hanxin would fully collect the deposit which it had paid to the agent if the purchase was not completed by June 30, 2010.  Since various issues within the factory’s creditors were not resolved during the second quarter of 2010, the agent was unable to fulfill this agreement. Therefore, the deposit was returned to Hanxin in June 2010 by the unrelated agent.

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9.   DEPOSIT FOR ACQUISITION

Hanxin intended to acquire Sichuan Hanxin Cork Merchandises Co, Ltd. (“Sichuan Hanxin”), one of its cork raw material providers located in Sichuan Province China, and signed a strategic cooperation agreement with Sichuan Hanxin on March 26, 2007. The purchase price of Sichuan Hanxin was not to exceed RMB20 million (equivalent to $2,949,226) based upon the agreement. As of June 30, 2010, Hanxin had paid RMB9.3 million  (equivalent to $1,371,390) deposits to Sichuan Hanxin.

On September 20, 2009, Hanxin entered into an agreement with the two shareholders of Sichuan Hanxin, Huadong Li and Xiaojun Wu. The agreement grants Hanxin an option to acquire 100% of the shares of Sichuan Hanxin by September 20, 2010. The acquisition price shall be between 120% and 150% of the net asset value as shown in the audited financial statements as of December 31, 2009 of Sichuan Hanxin. The amount of the premium over the net asset value is subject to agreement by the parties, but shall not exceed 150%. Exercise of the option is subject to a satisfactory financing arrangement, due diligence and requisite corporate approvals. In the event that any of the closing conditions are not satisfied by September 20, 2010, the agreement will terminate except that the breaching party shall be liable to pay a penalty of RMB 10 million (equivalent to $1,474,613). According to the agreement, Hanxin shall pay 30% of the acquisition price within 10 days from the date of fulfillment of all closing conditions, 30% within 60 days from the fulfillment date, and 40% within 10 days from completing the transfer of all assets and shares of Sichuan Hanxin.  Since the Company did not acquire any financing, and none of the closing conditions were satisfied as of September 20, 2010, the acquisition agreement between the Company and Sichuan Hanxin has been terminated. In addition, the Company purchased cork floor products from Sichuan Hanxin since April 2010. It incurred a huge amount of costs due to Sichuan Hanxin.  As a result, after negotiation by both parties, the acquisition deposit of RMB9.3 million (equivalent to $1,362,234 as of December 31, 2009) has fully offset the due debt resulting from the purchase of cork floor products from Sichuan Hanxin.

10.   NON-REFUNDABLE DEPOSIT FOR PURCHASE OF LAND USE RIGHT

In order to ensure a sufficient raw material production base, the Company plans to purchase the right to use a parcel of land of planting oak from Shaanxi Shuta Cork Products Co., Ltd (“Shuta”)  in the Baoji district Shaanxi Province of the PRC in 2007 (oak leather is used to produce the company's main raw material).  The Company prepaid RMB10 million (equivalent to $1,494,509) to Shuta. However, the Company terminated the agreement with Shuta in August, 2008.  The deposit was refunded to the Company in August and September 2008.   In the first quarter of 2009 the Company terminated the land use right purchase deal with Shuta. In 2008, based upon Hanxin’s sale and manufacturing strategies Shuta opened cork retail chain stores exclusively selling Hanxin’s products. In 2008 Hanxin was not able to achieve its 500,000 square meters floor and board production plan and delayed purchase orders from Shuta. Accordingly, Shuta had to readjust its year 2008 sales strategies and incurred heavy losses. In order to avoid losing an important distribution channel, Hanxin loaned RMB10 million (equivalent to $1,494,509) to   Shuta for a one year term commencing October 27, 2008.  This loan is non-interest bearing and unsecured.  On October 28, 2009, Hanxin signed a new loan agreement with Shuta extending the term of the loan from October 27, 2009 to October 27, 2011.

16

Hanxin would like to purchase the land use right in Baoji District Shaanxi Providence from Shaanxi Shuta as soon as it obtains sufficient financing. Hanxin believes that the price of the land is rising and needs the land use right for Portugal type production of cork trees. Therefore, on October 20, 2009, Hanxin signed a forgiveness memo with Shuta to express its desire to acquire 7,000 Mu (equal to 4,669,000 square meters) land use rights on or before October 20, 2011 for a purchase price of RMB37.8 millions, The purchase price is the same amount as provided in the prior agreement. In the event that Hanxin does not purchase the land by October 20, 2011, Hanxin will be liable to pay Shuta all upfront operation costs approximately RMB10 million (equivalent to $1,494,509) that Shuta had paid to acquire the land use right from the Baoji District government. The parties anticipate that if Hanxin does not purchase the land by October 20, 2011, Shuta will not repay the RMB10 million loan and the parties will have no further obligation to each other. Accordingly, the Company reclassified all of these loan amounts as Non-Refundable deposits for the purchase of land use right commencing as of October 20, 2009.

Even though Shuta is one of the major customers of Hanxin, for the nine months ended September 30, 2010 and in year ended December 31, 2009, the total amount sold to Shuta only represented 3.12% and 2.63% of total sales of Hanxin, respectively. Shuta does not have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Shuta is not subject to common control or common significant influence. Accordingly, Shuta is not deemed a related party of the Company for the nine months ended September 30, 2010 and the year ended December 31, 2009.

11.   INVESTMENT PROPERTIES – NET

On September 27, 2001, the Company purchased certain investment entertainment facilities called YuLerYuan Resort which included certain buildings, machinery, equipment, and the right to use a parcel of land of approximately 10,360.3 square meters for 40 years. The purchase price of the land use right is being amortized over the term of the right while other facilities are being depreciated over the estimated life of properties. The Company renovated the space and built an additional student dormitory in 2007. The construction was completed in June 2008. In order to pass the inspection from the authorities in China and obtain the ownership certificates, the Company spent additional funds to install fire-fighting equipments in the building starting the second quarter of 2010. As of September 30, 2010, the installation of fire fighting equipments had been completed. At the same time, the Company obtained the ownership certificates with respect to the dormitory. The YuLerYuan Resort including the new student dormitory was leased for $22,037 (equivalent to RMB150,000) per month to the university nearby YuLerYuan Resort and this agreement was renewed on March 1, 2010, and was extended to February 28th, 2011.

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As of September 30, 2010 and December 31, 2009, Investment Properties consisted of the following

			September 30, 2010		December 31, 2009
	Estimated Life		(Unaudited)		(Audited)
Depreciation Properties:
Buildings and improvements		28	$	938,166	$	919,497
Student dormitory		30		3,193,831		2,420,619
Machinery and equipments		5		26,792		26,259
Subtotal				4,158,789		3,366,375
Less: Accumulated depreciation				483,433		388,594
Total depreciation properties				3,675,356		2,977,781
Amortization Property:
Land use right		40		208,117		203,975
Less: Accumulated amortization				46,826		42,070
Total amortization properties				161,291		161,905
Total Investment Properties, Net			$	3,836,647	$	3,139,686

For the nine months ended September 30, 2010 and 2009, depreciation and amortization expenses for these investment entertainment facilities amounted to $89,310 and $88,973 respectively.

The amortization expenses of land use right for the next five years are as follows:

For the Quarter Ending September 30,	Amount
2011	$	5,115
2012		5,115
2013		5,115
2014		5,115
2015		5,115

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12.   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 $2,092,313 (equivalent to RMB 14 million). DeRong owns a cork tree forest plantation in China. The investment is long term and is stated at cost.

13.   INTANGIBLE ASSETS-NET

During the quarter ended June 30, 2008, the Company acquired ownership of three patent rights from its major stockholder and Chairman, Mr. Fang She Zhang for no consideration. 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 $4,231 (equivalent to RMB28,800). As of September 30, 2010 and December 31, 2009, intangible assets, less accumulated amortization consisted of the following:

	September 30, 2010		December 31, 2009
	(Unaudited)		(Audited)
Intangible assets	$	4,304	$	4,219
Less: Accumulated amortization		730		477
Total	$	3,574	$	3,742

For the nine months ended September 30, 2010 and 2009, amortization expense amounted to $240 and $238 respectively.

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

For the Quarter Ending September 30,	Amount
2011	$	319
2012		319
2013		319
2014		319
2015		319

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14.   LOAN PAYABLE

Loan payable as of September 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010		December 31, 2009
	(Unaudited)		(Audited)
Commencing September 24, 2009, the Company borrowed certain short-term loans from Mr. Yang Liu, an unrelated party. These short-term loans were in amounts of RMB1.47 million (equivalent to $215,321) as of December 31, 2009. The interest rate of these loans is 7.4% per year, and the term of the debt was from September 24, 2009 till September 24, 2010. The Company only repaid this short-term loans in the first quarter of 2010	$	-	$	215,321
Total Loan Payable	$	-	$	215,321

15.   CONVERTIBLE NOTES

In June 2008, the Company consummated an offering of convertible promissory notes and common stock purchase warrants for aggregate gross proceeds of $700,000. The notes matured in June 2009 and bore interest at an annual rate of 18%, payable at maturity in USD. Upon the successful closing of an equity or convertible debt financing for a minimum of $2,000,000 ("Financing"), the promissory notes will be convertible into shares of common stock at a 50% discount to the price per share of Common Stock sold in the Financing. Since the Financing was not achieved within the one year term of the promissory notes, each investor has the option to be paid the principal and interest due under the promissory note or convert the note into shares of common stock at a conversion price of $0.228 per share.

The warrants are exercisable at any time after the consummation of the Financing through the fourth anniversary of the consummation of the Financing (the "Financing Expiration Date"). Each holder is entitled to purchase the number of shares of common stock equal to the initial principal amount of such investor's promissory note divided by the lowest cash purchase price paid for the Company's common stock (or the conversion price or exercise price if the Financing consists of convertible securities or warrants, respectively) in the Financing (the "Financing Based Conversion Price") at an exercise price equal to the Financing Based Conversion Price. Since the Financing did not occur within 12 months of the issuance of the warrant, the warrant is exercisable from and after such date and through the fourth anniversary of the issuance date of the warrant. In such event, the holder is entitled to purchase the number of shares of common stock equal to 50% of the initial principal amount of the promissory note divided by $0.228 at an exercise price equal to $0.228, subject to certain adjustments as set forth in the warrant. Since the notes were not paid at maturity in June 2009, the annual interest rate payable since the maturity date increased to 24%. On July 6, 2010, the Company and those investors entered in to an amendment agreement. Pursuant to the amendment agreement, the maturity date was extended to October 31, 2010 and the interest rate under the note remained at 18% per annum from the issuance date through the maturity date.  

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On October 31, 2010, a second amendment agreement was entered into between the Company and the noteholders whereby the maturity date was extended again to February 28, 2011 and the interest rate under the notes remained at 18% per annum from the issuance date through the maturity date.  The Company has filed a registration statement with respect to a proposed public offering with the Securities and Exchange Commission (the “Registration Statement”), with respect to certain Units consisting of Common Stock and warrants . Upon the closing of the proposed offering, the Company shall:  (1) pay the investors cash by wire transfer in an amount equal to $350,000 (50% of the outstanding principal amount of the notes) and (2) the investors shall receive, upon conversion of the balance due under the note, such whole number of fully paid and non-assessable shares of the securities that is equal to the quotient of the sum of (i) $350,000 and (ii) all accrued a unpaid interest thereon, divided by fifty percent of the offering price per share of Common Stock included in the Units. .  In the event that the closing shall not occur by February 28, 2011, the interest rate under the note shall increase to 24% per annum, accruing from the first anniversary of the issuance of the note. The interest payable has been accrued and recorded as of September 30, 2010 and December 31, 2009

Since the warrants issued with convertible notes are basically long-term options to buy common stock at a fixed price, the Company allocated the proceeds from the offering of convertible promissory notes and common stock purchase warrants between the two securities utilizing the  incremental method, The difference between the market price of the common stock on the issuance date of the warrants and the warrant  exercise price of $0.228  has been carried on the balance sheet as a “discount on convertible note, and the sum also been carried on the balance sheet as an “additional paid-in capital-stock warrant” in the amount of $279,386 as of September 30, 2010 and December 31, 2009, respectively.

If the investors exercise the warrants, the Company will reflect the proceeds received and increase “Additional Paid-in Capital – Stock Warrant”, and “Common Stock” and “Additional Paid-in Capital in Excess of Par”. However, if the investors do not exercise the warrants, the Company will reduce “Additional Paid-in Capital –Stock Warrant” for $279,386, and increase “Additional Paid-In Capital from Expired Warrants” for a like amount.

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.

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The following is a summary of the status of outstanding warrants as of September 30, 2010:

	Warrants Outstanding		Weighted Average Exercise Price		Average Remaining Life in years		Aggregate Intrinsic Value
Outstanding, January 1, 2010		1,535,088	$	0.228		2.5	$	0.122
Granted								-
Forfeited		-		-		-		-
Exercised		-		-		-		-
Outstanding, September 30, 2010		1,535,088	$	0.228		1.75	$	0.018

16.   TAX PAYABLE

The Company and its U. S. subsidiary will file consolidated Federal income tax and state franchise tax annual report individually. 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 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 January 2008, CIE’s income is subject to a 25% tax rate.

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On September 30, 2010 and December 31, 2009, taxes payable consisted the following:

			September 30, 2010			December 31, 2009
			(Unaudited)			(Audited)
Value-added tax			$	541,109		$	144,664
Corporate income tax provision				488,263			373,542
Local taxes and surcharges				39,219			12,973
Franchise tax				3,214			3,214
		Total	$	1,071,805		$	534,393

The deferred income taxes assets results from a loss on disposition of fixed assets that are not deductible and bad debt allowance which is deductible when the bad debt is incurred.

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

		For The Nine Months Ended September 30,
		2010				2009
		(Unaudited)				(Audited)
Current taxes:
	Current income taxes in P.R. China	$	741,410			$	471,704
Deferred taxes (valuation ) benefit			(39,347	)		5,326
	Total provision for income taxes	$	702,063			$	477,030

The following is a reconciliation of the statutory taxes rate to the effective taxes rate for the nine months ended September 30, 2010 and 2009:

	For The Nine Months Ended September 30,
	2010			2009
U.S. statutory corporate income taxes rate		34	%		34	%
PRC taxes rate difference		(9	%)		(9	%)
Net effect of taxes exemption/non-taxable income/non-deductible expenses		(11	%)		(7	%)
Valuation allowance		1	%		-
Effective taxes rate		15	%		18	%

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The taxes effect of temporary differences that give rise to the Company’s deferred taxes assets as of September 30, 2010 and December 31, 2009 were as follows:

			September 30, 2010			December 31, 2009
			(Unaudited)			(Audited)
Deferred income taxes assets :
Bad debt allowance			$	74,880		$	40,389
Loss carryforward				9,065			-
Loss on disposition of fixed assets				14,907			17,266
		Total deferred income taxes assets	$	98,852		$	57,655
				.
Reported as:
Current deferred income taxes assets			$	10,879		$	3,064
Long-term deferred income taxes assets				87,973			54,591
		Net deferred income taxes assets	$	98,852		$	57,655

17.   DUE TO STOCKHOLDERS/OFFICERS

Amounts due to stockholders/officers are unsecured, non-interest bearing, and do not have a set repayment date.  As of September 30, 2010 and December 31, 2009, the total net amounts due to the stockholders/officers were $181,187 and $177,582, respectivelywhich represented the net amounts lent to the Company by Mr. Pengcheng Chen, the Chief Executive Officer of the Company.

18.   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 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 a one for six reverse split, (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.

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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 an 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 September 30, 2010.

In June 2008, the Company was assigned ownership of three patent rights from its major shareholder, Mr. Fangshe Zhang.  These patents were assigned without any payment due to Mr. Zhang. The application and filing costs of these three patents were RMB28,800 (equivalent to $4,199). In connection therewith, the Company recorded $4,199 of intangible assets, and same amount of additional paid in capital as of June 30, 2008.

19.   BASIC AND DILUTED EARNING PER SHARE

The following table sets forth the computation of basic and diluted net income per share:

		For Three Months Ended September 30,						For Nine Months Ended September 30,
		2010			2009			2010			2009
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Basic:
Numerator:
	Net  income for basic calculation	$	2,146,216		$	1,222,460		$	3,665,476		$	1,963,911
Denominator:
	Weighted average common shares		35,663,850			35,663,850			35,663,850			35,663,850
	Denominator for basic calculation		35,663,850			35,663,850			35,663,850			35,663,850
	Net income per share — basic	$	0.06		$	0.03		$	0.10		$	0.06
Diluted:
Numerator:
	Net  income for basic calculation	$	2,146,216		$	1,222,460		$	3,665,476		$	1,963,911
	Effect of dilutive securities issued		-			37,910			77,645			222,521
	Net income for diluted calculation	$	2,146,216		$	1,260,370		$	3,743,121		$	2,186,432
Denominator:
	Denominator for basic calculation		35,663,850			35,663,850			35,663,850			35,663,850
	Weighted average effect of dilutive securities:
	Convertible debt		3,070,175			3,070,175			3,070,175			3,070,175
	Warrants		1,535,088						1,535,088			-
	Denominator for diluted calculation		40,269,113			38,734,025			40,269,113			38,734,025
	Net income per share — diluted	$	0.05		$	0.03		$	0.09		$	0.06

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20.   COMMITMENTS

The Company leases its office space, and production facilities and lands under operating lease agreements that are expiring on December 31, 2010 and October, 2047 respectively. The following is a schedule of future minimum rental land payments required under these operating leases as of September 30, 2010.

For the Quarter Ended September 30,	Amount
2011	$	114,048
2012		17,826
2013		17,630
2014		17,630
2015		17,630
Thereafter		564,157
Total minimum rental payments required	$	748,921

Rent and properties maintenance expenses amounted to $143,808 and $87,480 for the nine months ended September 30, 2010 and 2009, 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 September 30, 2010.

For the Quarter Ended September 30,	Amount
2011	$	190,991
Total minimum rental payments required	$	190,991

Patent lease expenses amounted to $264,499 and $263,685 for the nine months ended September 30, 2010 and 2009, respectively.

21.   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.

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Concentrations Risks:

For the nine months ended September 30, 2010 and 2009, except for special sales to Sichuan Hanxin, none of the Company’s customers accounted for more than 10% of its sales.

Major Suppliers:

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

	Purchases from		Number of		Percentage
For The Nine Months Ended September 30,	Major Suppliers		Suppliers		of Total
2010	$	7,654,065		2		46.56	%
2009	$	3,308,935		2		23.29	%

Geographical Risks:

Substantially all of the Company’s operations are carried out through its subsidiaries located in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the economy of the PRC. The Company’s operations in the 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 the PRC, and by changes in governmental policies with respect to laws and regulations, changes in the PRC's cork manufacture industry and regulatory rules and policies, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation.

22.    SUBSEQUENT EVENTS

On October 26, 2010, the Company agreed to issue to the Hickey Freihofner Capital, a division of Brill Securities (the “Placement Agent”), 250,000 shares of Common Stock (the “Shares”) in consideration for the Placement Agent’s services in selling the promissory notes and warrants in  the Financing in 2008.  The shares were issued pursuant to the Placement Agent Agreement executed between the Company and the Placement Agent in 2008 and such Shares are in lieu of  any other compensation which may be owed with respect to such Financing, including the warrants specified in the Placement Agent Agreement.  The Company agreed to register such Shares under the Registration Statement for the offering of certain Units (the “Offering”), at its expense, and use its best efforts to cause such Registration Statement to become effective, provided the parties acknowledged that there is no assurance that the Offering will occur and that the Registration Statement will be declared effective by the SEC.

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On October 31, 2010, a second amendment agreement was entered into between the Company and the holders of the convertible promissory notes in the principal amount of $700,000 sold in the Financing in 2008, whereby the maturity date was extended again to February 28, 2011 and the interest rate under the notes remained at 18% per annum from the issuance date through the maturity date.   In the event that the closing of the Company’s proposed Offering does not occur by February 28, 2011, the interest rate under the note shall increase to 24% per annum, accruing from the first anniversary of the issuance of the note.

The Noteholders and Placement Agent agreed that  upon the closing of the Offering, they will not, without the prior written consent of the underwriter of the Offering, sell, assign, pledge, hypothecate or otherwise dispose of, directly or indirectly, any of their shares of Common Stock, or other distribution of stock, or grant of options, rights or warrants with respect to any such shares of Common Stock, for a period of nine (9) months following the closing of the Offering (six months with respect to the Placement Agent).

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following analysis of our consolidated financial condition and results of operations for the nine months ended September 30, 2010 and 2009, 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 15, 2010.

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.

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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 the Company as approved by the Board of Directors. The Company was the survivor of the merger and 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

Through our subsidiaries, we engage in developing, manufacturing and distribution of cork wood floor, wall and decorating products. The cork industry is generally regarded as environmentally friendly. The sustainability of production and the easy recycling of cork products and by –products are two of its most distinctive aspects. For the years ended December 31, 2009 and 2008, we sold all our products to our clients in China, and then part of our China clients resold our products to their overseas clients.  Approximately 75% of Hanxin’s products sold in 2009 were to the end users in China by our own sales persons and domestic distributors and agents, with the remaining sales being made to customers overseas through our China clients who included unrelated distributors and sales agents. Internationally, our products have been distributed into India, the United States of America, Germany and Japan. The sales to the distributors, the sales agent and directly to clients have no difference as reflected in accounting policies, as the price and the means of delivery has no material differences. All sales revenues are recognized when reception and inspection of goods are finished by clients.  We have the right to use 17 patents developed by Fangshe Zhang, our Chairman regarding cork processing technologies. We own 3 patents, lease 3 patents, and have exclusive right to use another 11 patents for free. We believe that these 17 patents give us a competitive advantage in our product quality. With the patents we own and develop, we believe that we will be able to keep our leading status in cork production industry in China.

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.

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

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

Critical Accounting Policies

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

A summary of significant accounting policies is included in Note 2 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.

We record property and equipment at cost. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which are from 1 to 35 years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. We review the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

Our 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.

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RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2009

		For The Three Months Ended September 30,
		2010			2009
		(Unaudited)			(Unaudited)			(Decrease)/ Increase
Revenues		$	11,002,498		$	10,151,002		$	851,496			8.39	%
Cost of Goods Sold			7,552,944			6,481,710			1,071,234			16.53	%
Gross Profit			3,449,554			3,669,292			(219,738	)		-5.99	%
Gross Profit Percentage			31.35	%		36.15	%
Operating Expenses
	Selling expenses		615,035			1,555,095			(940,060	)		-60.45	%
	Bad debt		61,897			248,574			(186,677	)		-75.10	%
	Research & development costs		309			73,181			(72,872	)		0.00	%
	General and administrative expense		79,425			154,946			(75,521	)		-48.74	%
Total Operating Expenses			756,666			2,031,796			(1,275,130	)		-62.76	%
Income From Operations			2,692,888			1,637,496			1,055,392			64.45	%
Other Income (Expense)
	Interest income (expense), net		13,065			(41,752	)		54,817			-131.29	%
	Other income, net		32,890			26,260			6,630			25.25	%
Total Other income (Expense)			45,955			(15,492	)		61,447			-396.64	%
Income from Continuing Operations Before Taxes			2,738,843			1,622,004			1,116,839			68.86	%
Income Tax Provision			407,187			293,830			113,357			38.58	%
Net Income Before Noncontrolling Interest			2,331,656			1,328,174			1,003,482			75.55	%
	Less: Net  income attributable to the noncontrolling interest		185,440			105,714			79,726			75.42	%
Net  Income  Attributable to Asia Cork Inc.		$	2,146,216		$	1,222,460		$	923,756			75.57	%

Revenues

For the three months ended September 30, 2010, our revenues were $11,002,498 as compared to $10,151,002 for the three months ended September 30, 2009, an increase of $851,496 or 8.39%. The primary reason for the increase in revenues resulted from the increase of orders from our major customers in the third quarter of 2010 as compared to the same period of 2009. In the third quarter of 2010 sales of major finished goods (wood materials and boards) increased as compared to the third quarter of 2009. Despite the fact that this quantities of floors sold declined in the current period. Commencing in April 2010, we manufactured more series of products for wood materials, which caused the quantities of wood materials to increase significantly during the current period.

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The following table sets forth information regarding the sales of our principal products during the three months ended September 30, 2010 and 2009

	For The Three Months Ended September 30
	2010							2009							2010 Less 2009
Product Name	Quantities (Square Meter)		Amount		Sale %			Quantities (Square Meter)		Amount		Sale  %			Quantity (square meter)			Amount			Sale  %
Wood Materials		1,659,868	$	3,907,643		36	%		464,231	$	2,541,764		25	%		1,195,637		$	1,365,879			54	%
Boards		109,194		1,162,677		11	%		69,275		623,839		6	%		39,919			538,838			86	%
Floors		290,307		5,928,757		54	%		351,177		6,985,382		69	%		(60,870	)		(1,056,625	)		-15	%
Others		-		3,421		0	%		-		17		0	%		-			3,404			19866	%
Total		2,059,369	$	11,002,498		100	%		884,683	$	10,151,002		100	%		1,174,686		$	851,496			8	%

The increase in quantities per square meter, as reflected in the table, is relatively primarily attributable to the fact that we increased orders from our new and existing major customers. We increased sales volume of our products from 884,683 for the three months ended September 30, 2009 to 2,059,369 during the three months ended September 30, 2010

The following table sets forth information regarding the average unit sales price per square meter of our principal products during the three months ended September 30, 2010 and 2009

	Average Unit Sales Price Per Square Meter				Basic Change
Product Name	2010		2009		Per Square Meter
Wood Materials	$	2.35	$	5.48	$	(3.13	)
Boards		10.65		9.01		1.64
Floors		20.42		19.89		0.53
Overall Average Products		5.34		11.47		(6.13	)

The decrease in average sales price per square meter, as reflected in the table, is relatively primarily attributable to the facts that we sold much more quantities of low unit sales price products of wood materials of density materials in the current period rather than a decrease in the sales price of major products of wood materials. Despite we prompted slightly unit sales price for boards commencing from October 2009. We sold more products of wood materials during the current periods. Therefore, the average sales price per square meter declined significantly for the three months ended September 30, 2010

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Cost of Sales and Gross Profit

For the three months ended September 30, 2010, cost of sales amounted to $7,552,944 or 68.65% of net revenues as compared to cost of sales of $6,481,710 or 63.85% of net revenues for the three months ended September 30, 2009. Gross profit for the three months ended September 30, 2010 was $3,449,554 or 31.35% of total revenues, as compared to $3,669,292 or 36.15% of total revenues for the three months ended September 30, 2009. The gross margin decreased primarily as a result that we sold more products of wood materials which were low gross margin to our major customers during the current periods. In addition we raised employee salaries commencing in October 2009 and in May 2010. As a result, our unit costs increased slightly for the three months ended September 30, 2010 as compared to the same period of 2009.

The following table sets forth information regarding the average cost per square meter of our principal products during the three months ended September 30, 2010 and 2009

	Average Cost Per Square Meter				Basic Change
Product Name	2010		2009		Per Square Meter
Wood Materials	$	1.93	$	3.74	$	(1.81	)
Boards		5.84		5.71		0.13
Floors		11.31		10.94		0.37
Overall Average Products		3.67		7.33		(3.66	)

The decrease in average cost per square meter, as reflected in the table, is relatively primarily attributable to the facts that we sold much more quantities of low unit cost products of wood materials for the three months ended September 30, 2010 as compare to the same periods in 2009

Operating Expenses

For the three months ended September 30, 2010, total operating expenses were $756,666 as compared to $2,031,796 for the three months ended September 30, 2009, a decrease of $1,275,130 or 62.76%. This decrease was attributable to a decrease in selling expenses and commission costs. Despite the increase, an increase in freight costs was associated with the increase in our revenues. However the amount of the potential increase was reduced by a change in the commission rate from 10% to 2% in the fourth quarter of 2009. The decrease in general and administrative expenses was primarily attributable to decreases professional fees in the third quarter of 2010 as compared to the same quarter of 2009.

For the three months ended September 30, 2010, bad debt reserve amounted to $61,897 as compared to $248,574 for the three months ended September 30, 2009, a decrease of $186,677 or 75.10%. The reason is primarily attributable to an increase in bad debt allowance from 0.5% to 5% of the outstanding accounts receivable commencing as of July 2009.

For three months ended September 30, 2010, research and development costs amounted to $309 as compared to $73,181 for the three months ended September 30, 2009, a decrease of $72,872 or 99.6%. The reason is primarily due to the Company engaging an unrelated party in August 2009 to develop a project focused on cork material carbonizing in order to acquire advanced technical procedures for future manufacturing.

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Other Income (expense)

For the three months ended September 30, 2010, other income - net, amounted to $45,955 as compared to other expense net of $15,492 for the three months ended September 30, 2009, a increase of $61,447 or 396.64%. Other income for the three months ended September 30, 2010 and 2009 is related to the income received from the leasing of our Yu Ler Yuan Resort..

For the three months ended September 30, 2010, net interest income was $13,065 as compared to net interest expense of $41,752 for three months ended September 30, 2009, a decrease of $54,817 or 131.29%.In June 2008, the Company issued convertible notes and common stock purchase warrants resulting in aggregate gross proceeds of $700,000. The notes matured one year from the date of issuance and bore interest at an annual rate of 18%, payable at maturity in USD. Since the notes were not paid at maturity, the annual interest rate increased to 24%.  On July 6, 2010, the Company and those investors entered in to an amendment agreement. Pursuant to the amendment agreement, the maturity date was extended to October 31, 2010 and the interest rate under the note remained at 18% per annum from the issuance date through the maturity date.  On October 31, 2010, a second amendment agreement was entered into between the Company and the Selling Stockholders whereby the maturity date was extended again to February 28, 2011 and the interest rate under the notes remained at 18% per annum from the issuance date through the maturity date.  Upon the closing of the concurrent Offering, the Company shall:  (1) pay the investors cash by wire transfer in an amount equal to $350,000 (50% of the outstanding principal amount of the notes) and (2) the investors shall receive, upon conversion of the balance due under the note, such whole number of fully paid and non-assessable shares of the securities that is equal to the quotient of the sum of (i) $350,000 and (ii) all accrued a unpaid interest thereon, divided by fifty percent of the offering price per share of Common Stock included in the Units.  In the event that the closing shall not occur by February 28, 2011, the interest rate under the note shall increase to 24% per annum, accruing from the first anniversary of the issuance of the note. As a result, the Company recalculated interest expense from 24% to 18% for the three months ended September 30, 2010, which caused the interest expense declined significantly for the three months ended September 30, 2010.

Income Tax

Net income taxes expense increased by $113,357 to $407,187 for the three months ended September 30, 2010 as compared to $293,830 for the three months ended September 30, 2009. This increase was primarily due to an increase in net income before income taxes in the third quarter of 2010 as compared to the third quarter of 2009.

NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TONINE MONTHS ENDED SEPTEMBER 30, 2009

	For The Nine Months Ended September 30,
	2010			2009
	(Unaudited)			(Unaudited)
							(Decrease)/ Increase
Revenues	$	22,436,245		$	17,056,777		$	5,379,468		31.54	%
Cost of Goods Sold		15,744,727			11,032,415		4,712,312			42.71	%
Gross Profit		6,691,518			6,024,362		667,156			11.07	%
Gross Profit Percentage		29.82	%		35.32	%
Operating Expenses
Selling expenses		1,205,358			2,470,208			(1,264,850	)	-51.20	%
Bad debt		220,666			253,104			(32,438	)	-12.82	%
Research & development costs		110,187			73,181			37,006		50.57	%
General and administrative expense		493,970			427,381			66,589		15.58	%
Total Operating Expenses		2,030,181			3,223,874			(1,193,693	)	-37.03	%
Income  From Operations		4,661,337			2,800,488			1,860,849		66.45	%
Other Income (Expense)
Interest (expense), net		(72,269	)		(259,117	)		186,848		-72.11	%
Other income, net		98,134			78,760			19,374		24.60	%
Total Other Income (Expense)		25,865			(180,357	)		206,222		-114.34	%
Income  from Continuing Operations Before Taxes		4,687,202			2,620,131			2,067,071		78.89	%
Income Tax Provision		702,063			477,030			225,033		47.17	%
Net Income Before Noncontrolling Interest		3,985,139			2,143,101			1,842,038		85.95	%
Less: Net  income attributable to the noncontrolling interest		319,663			179,190			140,473		78.39	%
Net  Income Attributable to Asia Cork Inc.	$	3,665,476		$	1,963,911		$	1,701,565		86.64	%

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Revenues

For the nine months ended September 30, 2010, our revenues were $22,436,245 as compared to $17,056,777 for the nine months ended September 30, 2009, an increase of $5,379,468 or 31.54%. The primary reason for the increase was attributable to the fact that our sales of major finished goods of boards increased for the nine months ended September 30, 2010 as compared to the same period of 2009. Moreover, we manufactured more series of products for wood materials commencing April 2010, which caused the quantities of wood materials to increase significantly during the nine months ended September 30, 2010. In addition, we sold secondary raw materials in the amount of $1,189,002 to Sichuan Hanxin during the first quarter of 2010. No such sales were made in the first quarter of 2009.

The following table sets forth information regarding the sales of our principal products during the nine months ended September 30, 2010 and 2009

	For The Nine Months Ended September 30
	2010							2009							2010 Less 2009
Product Name	Quantities (Square Meter)		Amount		Sale %			Quantities (Square Meter)		Amount		Sale %			Quantity (square meter)		Amount			Sale %
Wood Materials		2,684,477	$	7,035,666		31.2	%		737,150	$	4,220,428		25	%		1,947,327	$	2,815,238			67	%
Boards		230,989		2,448,256		11.1	%		113,717		1,024,081		6	%		117,272		1,424,175			139	%
Floors		599,206		11,731,326		52.3	%		586,085		11,747,160		69	%		13,121		(15,834	)		0	%
Secondary raw materials		-		1,189,002		5.3	%		-		-		0	%		-		1,189,002			0	%
Others		-		31,995		0.1	%		-		65,108		0	%		-		(33,113	)		-51	%
Total		3,514,672	$	22,436,245		100	%		1,436,952	$	17,056,777		100	%		2,077,721	$	5,379,468			32	%

The increase in quantities per square meter, as reflected in the table, is relatively primarily attributable to the fact that we increased orders from our new and existing major customer.  We increased sales volume of our products from 1,436,952 for the nine months ended September 30, 2009 to 3,514,672 during the nine months ended September 30, 2010.

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The following table sets forth information regarding the average unit sales price per square meter of our principal products during the nine months ended September 30, 2010 and 2009

	Average Unit Sales Price Per Square Meter				Basic Change
Product Name	2010		2009		Per Square Meter
Wood Materials	$	2.62	$	5.73	$	(3.11	)
Boards		10.60		9.01		1.60
Floors		19.58		20.04		(0.47	)
Overall Average Products		6.38		11.87		(5.49	)

The decrease in average sales price per square meter, as reflected in the table, is relatively primarily attributable to the facts that we sold much more quantities of low unit sales price products of wood materials of density materials in the current period rather than a decrease in the sales price of major products of wood materials. Despite we prompted slightly unit sales price for boards commencing from October 2009. We sold more products of wood materials during the nine months ended September 30, 2010. Therefore, the average sales price per square meter declined significantly for the nine months ended September 30, 2010

Cost of Sales and Gross Profit

For the nine months ended September 30, 2010, cost of sales amounted to $15,744,727 or 70.18% of net revenues as compared to cost of sales of $11,032,415 or 64.68% of net revenues for the nine months ended September 30, 2009. Gross profit for the nine months ended September 30, 2010 was $6,691,518 or 29.82% of revenues, as compared to $6,024,362 or 35.32% of revenues for the nine months ended September 30, 2009. Gross margin decreased primarily as a result of selling more products of wood materials which generated low gross margins to our major customers for the nine months ended September 30, 2010. Moreover there was a low margin sale of secondary raw materials to Sichuan Hanxin in the first quarter of 2010.  In addition, we raised employee salaries commencing in October 2009 and in May 2010. As a result, our unit costs increased slightly for the nine months ended September 30, 2010 as compared to the same period of 2009.

The following table sets forth information regarding the average cost per square meter of our principal products during the nine months ended September 30, 2010 and 2009

	Average Cost Per Square Meter				Basic Change
Product Name	2010		2009		Per Square Meter
Wood Materials	$	2.10	$	4.06	$	(1.96	)
Boards		5.99		5.95		0.04
Floors		11.60		11.52		0.08
Overall Average Products		4.48		7.68		(3.20	)

The decrease in average cost per square meter, as reflected in the table, is relatively primarily attributable to the facts that we sold much more quantities lower unit cost products of wood materials for the nine months ended September 30, 2010 as compare to the same periods of 2009.

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The following table sets forth information regarding the sales and costs of secondary raw materials during the nine months ended September 30, 2010 and 2009

	For The Nine Months Ended September 30, 2010
	Total Quantities		Sales Amount		Unit Sales Price		Costs Amount		Gross Profit		Unit Costs Price
Secondary Raw Materials		567,673	$	1,189,002		2.09	$	1,171,147	$	17,855		2.06

Because it is difficult to control the application amount of secondary raw materials in the course of manufacturing cork floor product in Sichuan Hanxin, and in order to avoid too much cash flow into the secondary raw materials, in January 2010, the Company entered into a sales agreement with Sichuan Hanxin to sell secondary raw materials without any profit. See more information in Note 4 of financial statement.

Operating Expenses

For the nine months ended September 30, 2010, total operating expenses were $2,030,181 as compared to $3,223,874 for the nine months ended September 30, 2009, an decrease of $1,193,693 or 37.03%. This decrease was attributable to a decrease in selling expenses. The decrease in selling expenses was primary attribution to a decline in commission fees. Despite the increase, an increase in freight costs was associated with our increased revenue. However the amount of the potential increase was reduced by a change in the commission rate from 10% to 2% starting the fourth quarter of 2009. The increase in general and administrative expenses was primarily attributable to increases in employee salaries and professional fees for the nine months ended September 30, 2010 as compared to the same period in 2009.

For the nine months ended September 30, 2010, bad debt reserve amounted to $220,666 as compared to $253,104 for nine months ended September 30, 2009, a decrease of $32,438 or 12.82%. The reason for the decrease is primarily attributable to an increase in bad debt allowance from 0.5% to 5% of the outstanding accounts receivable commencing as of July 2009.

For the nine months ended September 30, 2010, research and development costs amounted to $110,187 as compared to $73,181 for the nine months ended September 30, 2009, an increase of $37,006 or 50.57%. The reason is primarily due to the Company engaging an unrelated party in August 2009 to develop a project focused on cork material carbonizing in order to acquire advanced technical procedures for future manufacturing.

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Other Income (expense)

For the nine months ended September 30, 2010, other income net amounted to $25,865as compared to other expense net of $180,357 for the nine months ended September 30, 2009, a increase of $206,222 or114.34%. Other income for the nine months ended September 30, 2010 and 2009 is related to the income received from the leasing of our Yu Ler Yuan Resort.

For the nine months ended September 30, 2010, net interest expense was $72,269 as compared to net interest expenses of $259,117 for nine months ended September 30, 2009, a decrease of $186,848, or 72.11%. In June 2008, the Company issued convertible notes and common stock purchase warrants resulting in aggregate gross proceeds of $700,000. The notes matured one year from the date of issuance and bore interest at an annual rate of 18%, payable at maturity in USD. Since the notes were not paid at maturity, the annual interest rate increased to 24%. On July 6, 2010, the Company and those investors entered in to an amendment agreement. Pursuant to the amendment agreement, the maturity date was extended to October 31, 2010 and the interest rate under the note remained at 18% per annum from the issuance date through the maturity date.  On October 31, 2010, a second amendment agreement was entered into between the Company and the noteholders whereby the maturity date was extended again to February 28, 2011 and the interest rate under the notes remained at 18% per annum from the issuance date through the maturity date.  Upon the closing of the concurrent Offering, the Company shall:  (1) pay the investors cash by wire transfer in an amount equal to $350,000 (50% of the outstanding principal amount of the notes) and (2) the investors shall receive, upon conversion of the balance due under the note, such whole number of fully paid and non-assessable shares of the securities that is equal to the quotient of the sum of (i) $350,000 and (ii) all accrued a unpaid interest thereon, divided by fifty percent of the offering price per share of Common Stock included in the Units.  In the event that the closing shall not occur by February 28, 2011, the interest rate under the note shall increase to 24% per annum, accruing from the first anniversary of the issuance of the note. As a result, the Company recalculated interest expense from 24% to 18% for the nine months ended September 30, 2010, which caused the interest expense declined significantly for the nine months ended September 30, 2010.

Income Tax

Net income taxes expense increased by $225,033 to $702,063 for the nine months ended September 30, 2010 as compared to $477,030 for the nine months ended September 30, 2009. This increase was primarily due to an increase in net income before income taxes in the first three quarters of 2010 as compared to the same period in 2009.

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LIQUIDITY AND CAPITAL RESOURCES

Operating working capital (cash and equivalents plus accounts receivable plus inventory less accounts payable and accrued expenses) increased by $8,511,502 from  $9,665,058 as of December 31, 2009 to $18,176,560 as of September 30, 2010. The increase was primarily due to an increase in inventories and accounts receivable in the amount of $3,360,855 and $4,335,379 during the current year, respectively. At the same time, we had an increase in accounts payable and accrued expenses in the amount of $771,672.

Cash provided by operating activities was $441,775 for the nine months ended September 30, 2010 as compared to $1,455,045 for the nine months ended September 30, 2009. The decrease in cash provided by operating activities for the nine months ended September 30, 2010 was a result of an increase of accounts receivable.

Investing activities for the nine months ended September 30, 2010 was $1,297,319 of net cash provided as compared to $708,962 of net used for the nine months ended September 30, 2009.  The provision of cash for the nine months ended September 30, 2010 was primarily attributable to proceeds from withdraw deposit for purchase of fixed assets from an unrelated agent.

Financing activities for the nine months ended September 30, 2010 was $186,026 of net cash used, as compared to $224,132 used for the nine months ended September 30, 2009. The use of cash for the nine months ended September 30, 2010 and 2009 were primarily attributable to repayment of a loan from an unrelated party, respectively.

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In June 2008, the Company issued convertible notes and common stock purchase warrants resulting in aggregate gross proceeds of $700,000. The notes matured one year from the date of issuance and bore interest at an annual rate of 18%, payable at maturity in USD. Since the notes were not paid at maturity, the annual interest rate increased to 24%. Upon the closing of a financing of at least $2,000,000, 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 such financing.  Each holder also has the option to either be paid the principal and interest due under the promissory note or, convert the note into shares of common stock at a conversion price of $0.228 per share. The warrants are exercisable at any time after the consummation of such financing through the fourth anniversary of the consummation of such financing (the "Financing Expiration Date").Since the financing  did not occur within 12 months of the issuance of the warrants, each warrant is exercisable for the number of shares of common stock equal to 50% of the initial principal amount of the promissory note divided by $0.228, at an exercise price equal to $0.228, subject to certain adjustments as set forth in the warrant. The interest payable regarding the convertible notes has been accrued and recorded as of September 30, 2010. On July 6, 2010, the Company and those investors entered in to an amendment agreement. Pursuant to the amendment agreement, the maturity date was extended to October 31, 2010 and the interest rate under the note remained at 18% per annum from the issuance date through the maturity date.  On October 31, 2010, a second amendment agreement was entered into between the Company and the Noteholders whereby the maturity date was extended again to February 28, 2011 and the interest rate under the notes remained at 18% per annum from the issuance date through the maturity date.  Upon the closing of the concurrent Offering, the Company shall:  (1) pay the investors cash by wire transfer in an amount equal to $350,000 (50% of the outstanding principal amount of the notes) and (2) the investors shall receive, upon conversion of the balance due under the note, such whole number of fully paid and non-assessable shares of the securities that is equal to the quotient of the sum of (i) $350,000 and (ii) all accrued a unpaid interest thereon, divided by fifty percent of the offering price per share of Common Stock included in the Units.  In the event that the closing shall not occur by February 28, 2011, the interest rate under the note shall increase to 24% per annum, accruing from the first anniversary of the issuance of the notes.

The promissory notes are secured by common stock pledged by Pengcheng Chen, our Chief Executive Officer and Fangshe Zhang, our Chairman. The holders have not sought to take possession of such collateral to date.  

We have approximately $17.88 million of net working capital (total current assets less total current liabilities). This increase was primarily because our accounts receivable balance increased from improvements in credit sales for the nine months ended September 30, 2010, despite the fact that the payment by our major customers was extended to one year commencing as of July 2010. In order to ensure that we have sufficient funds, we will actively attempt to collect the outstanding accounts receivable in the near future. As a result, we believe we have sufficient resources to finance our operations for the coming year.

Since the Company’s PRC operation subsidiaries, Xian Hanxin Technology Co., Ltd. ("Hanxin") and Cork Import and Export Co. Ltd (“CIE”) have not paid or declared any dividends on their common stock within the past three years and do not foresee doing so in the foreseeable future.  Hanxin and CIE intend to retain any future earnings for the operation and expansion of their business in the PRC.  Any decision as to future payment of dividends will depend on the future available earnings, the capital requirements of Hanxin and CIE, their general financial condition and other factors deemed pertinent by the Board of Directors.  In addition, as discussed below, there are restrictions on the ability of our Chinese operating subsidiaries to pay dividends due to foreign exchange control and other regulations of China. 

Under applicable PRC regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulated amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of a liquidation. 

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Furthermore, the ability of our Chinese operating subsidiaries to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balance of the Chinese operating subsidiaries. Because substantially all of our operations are conducted in China, all of our revenue and currency received are denominated in Renminbi (RMB). RMB is subject to the exchange control regulations in China, and, as a result, we may unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into U.S. Dollars. 

Our inability to receive dividends or other payments from our Chinese operating subsidiaries could adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. The funds of Hanxin and CIE may not be readily available to us to satisfy obligations which have been incurred outside the PRC, which could adversely affect our business and prospects or our ability to meet our cash obligations. Accordingly, if we do not receive dividends from our Chinese operating subsidiaries, we may not have sufficient cash flow to fund our corporate overhead and regulatory obligations in the United States and may be unable to pay dividends on our shares of capital stock.

INFLATION

During the period under review, inflation did not have a material impact on our financial performance.

Web Site Access to Our Periodic SEC Reports

You may read and copy any public reports we filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E. Room 1580, Washington D.C. 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-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 applicale.

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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, 2009, 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

 Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

             None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

             None

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

             None

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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 of2002.
32.1	Certification of Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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: November 13, 2010	By:	/s/ Pengcheng Chen
		Name: Pengcheng Chen,
		Title: Chief Executive Officer
	By:	/s/ Yi Tong
		Name: Yi Tong,
		Title: Chief Financial Officer

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