UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549





FORM 10-Q



(Mark One)

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

For the quarterly period ended: March 31, 2008



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

Commission File No. 0-31619



AMERICAN LORAIN CORPORATION

(Exact name of registrant as specified in its charter)



|Delaware                                                        | 87-0430320           
|--------------------------------------------------------------- | ---------------------
|(State or other jurisdiction of  Incorporation or Organization) | (IRS Employer ID No.)



Beihuan Zhong Road

Junan County

Shandong, China 276600

(Address of principal executive offices)



(86) 539-7318818

(Issuer's telephone number)

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange 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 QNo£

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.

Large accelerated filer £           
Accelerated filer £           
Non-accelerated filer £           
Smaller reporting company Q

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).

Yes £NoQ

The numbers of shares outstanding of each of the issuers classes of common
equity, as of May 16, 2008, are as follows:

|Class of Securities                | Shares Outstanding
|---------------------------------- | ------------------
|Common
    Stock, $0.001 par value | 24,935,421        

---



Table of Contents

|                               |                                                                                           | Page    
|------------------------------ | ----------------------------------------------------------------------------------------- | --------
|Part I - Financial Information |                                                                                          
|                               |                                                                                           |         
|Item 1                         | Financial Statements                                                                      | 1 to 22 
|                               |                                                                                           |         
|Item 2                         | Management's Discussion and Analysis of
    Financial Condition and results of Operations | 23 to 34
|                               |                                                                                           |         
|Item 3                         | Quantitative and Qualitative Disclosures
    about Market Risk                            | 34 to 35
|                               |                                                                                           |         
|Item 4                         | Controls and Procedures                                                                   | 35      
|                               |                                                                                           |         
|Part II - Other Information    |                                                                                          
|                               |                                                                                           |         
|Item 1                         | Legal Proceedings                                                                         | 36      
|                               |                                                                                           |         
|Item 1A                        | Risk Factors                                                                              | 36      
|                               |                                                                                           |         
|Item 2                         | Unregistered Sales of Unregistered Securities
    and Use of Proceeds                     | 36      
|                               |                                                                                           |         
|Item 3                         | Defaults Upon Senior Securities                                                           | 36      
|                               |                                                                                           |         
|Item 4                         | Submission of Matters to a Vote of Security
    Holders                                   | 36      
|                               |                                                                                           |         
|Item 5                         | Other Information                                                                         | 36      
|                               |                                                                                           |         
|Item 6                         | Exhibits                                                                                  | 36      
|                               |                                                                                           |         
|Signatures                     |                                                                                           | 37      
|                               |                                                                                           |         

---

PART I 
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LORAIN CORPORATION 
CONSOLIDATED BALANCE SHEETS 
AT MARCH 31, 2008 AND DECEMBER 31, 2007 
(Stated in US Dollars)

|                                       |         |   |            |   | (Audited)  
|-------------------------------------- | ------- | - | ---------- | - | -----------
|                                       | Note    |   | 3/31/2008  |   | 12/31/2007 
|                                       |         |   |            |   |            
|ASSETS                                 |         |   |            |   |            
|Current Assets                         |         |   |            |   |            
|Cash and Cash equivalents              | 2(m)    | $ | 6,262,497  | $ | 6,769,973  
|Restricted Cash                        | 3       |   | 1,987,117  |   | 2,021,839  
|Short-term Investment                  |         |   | 7,547      |   | 7,246      
|Trade accounts receivable              | 4       |   | 31,162,508 |   | 32,859,688 
|Other receivables                      |         |   | 3,958,096  |   | 7,552,976  
|Inventory                              | 2(j), 5 |   | 16,114,560 |   | 17,903,344 
|Advance to Suppliers                   |         |   | 4,526,915  |   | 5,357,951  
|Prepaid Expenses and Taxes             |         |   | -          |   | 916,774    
|                                       |         |   |            |   |            
|Total Current Assets                   |         | $ | 64,019,241 | $ | 73,389,790 
|                                       |         |   |            |   |            
|Non-Current Assets                     |         |   |            |   |            
|Long-term Investment                   |         |   | 772,641    |   | -          
|Property, plant and equipment, net     | 2(f), 6 |   | 28,267,573 |   | 24,022,181 
|Land use rights, net                   | 7       |   | 3,151,475  |   | 3,047,021  
|                                       |         |   |            |   |            
|TOTAL ASSETS                           |         | $ | 96,210,929 | $ | 100,458,992
|                                       |         |   |            |   |            
|LIABILITIES AND STOCKHOLDERS EQUITY   |         |   |            |   |            
|Current Liabilities                    |         |   |            |   |            
|Short-term bank loans                  | 8       | $ | 21,754,028 | $ | 24,077,504 
|Notes payable                          | 9       |   | 5,696,221  |   | 2,734,444  
|Accounts payable                       |         |   | 7,753,951  |   | 6,251,833  
|Income tax payable                     |         |   | 228,144    |   | 1,121,528  
|Accrued liabilities and other payables |         |   | 6,163,623  |   | 16,784,108 
|Customers deposits                     |         |   | 2,736,553  |   | 957,642    
|                                       |         |   |            |   |            
|Total Current Liabilities              |         | $ | 44,332,520 | $ | 51,927,058 
|                                       |         |   |            |   |            
|Long-term Liabilities                  |         |   |            |   |            
|Long-term bank loans                   | 10      |   | 531,130    |   | 102,542    
|                                       |         |   |            |   |            
|                                       |         | $ | 44,863,650 | $ | 52,029,600 

See Accompanying Notes to the Financial Statements and
Accountants Report.

1

---



AMERICAN LORAIN CORPORATION 
CONSOLIDATED BALANCE SHEETS 
AT MARCH 31, 2008 AND DECEMBER 31, 2007 
(Stated in US Dollars)

|                                                            |      |   |            |   | (Audited)  
|----------------------------------------------------------- | ---- | - | ---------- | - | -----------
|                                                            | Note |   | 3/31/2008  |   | 12/31/2007 
|                                                            |      |   |            |   |            
|Minority interests                                          | 11   | $ | 4,185,362  | $ | 3,887,021  
|                                                            |      |   |            |   |            
|STOCKHOLDERS
    EQUITY                                    |      |   |            |   |            
|                                                            |      |   |            |   |            
|Common Stock, $0.001 par value, 200,000,000
    shares      |      |   |            |   |            
|authorized; 24,923,178 shares issued and
    outstanding as |      |   |            |   |            
|of March 31, 2008 and December 31, 2007                     | 12   |   | 24,923     |   | 24,923     
|Additional paid-in-capital                                  |      |   | 24,187,268 |   | 24,187,268 
|Statutory reserves                                          |      |   | 6,087,183  |   | 4,497,647  
|Retained earnings                                           |      |   | 14,127,990 |   | 13,985,824 
|Accumulated other comprehensive                             |      |   |            |   |            
|Income                                                      |      |   | 2,734,552  |   | 1,846,708  
|                                                            |      |   |            |   |            
|                                                            |      | $ | 47,161,917 | $ | 44,542,370 
|                                                            |      |   |            |   |            
|TOTAL LIABILITIES
    AND STOCKHOLDERS
    EQUITY          |      | $ | 96,210,929 | $ | 100,458,992

See Accompanying Notes to the Financial Statements and
Accountants Report.

2

---



AMERICAN LORAIN CORPORATION 
CONSOLIDATED STATEMENTS OF INCOME 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 
(Stated in US Dollars)

|                                    | Note     |   | 3/31/2008    |   | 3/31/2007  
|----------------------------------- | -------- | - | ------------ | - | -----------
|                                    |          |   |              |   |            
|Net revenues                        |          | $ | 17,428,299   | $ | 11,898,812 
|Cost of revenues                    |          |   | (13,480,324) |   | (8,952,799)
|                                    |          |   |              |   |            
|Gross profit                        |          | $ | 3,947,975    | $ | 2,946,013  
|                                    |          |   |              |   |            
|Operating expenses                  |          |   |              |   |            
|Selling and marketing expenses      |          |   | (618,968)    |   | (125,833)  
|General and administrative expenses |          |   | (544,450)    |   | (359,999)  
|                                    |          |   |              |   |            
|Operating Income                    |          | $ | 2,784,557    | $ | 2,460,181  
|                                    |          |   |              |   |            
|Government subsidy income           |          |   | 32,750       |   | 7,721      
|Interest and other income           |          |   | 39,083       |   | 26,590     
|Other expenses                      |          |   | (10,168)     |   | (4,226)    
|Interest expense                    |          |   | (590,297)    |   | (565,670)  
|                                    |          |   |              |   |            
|Earnings before tax                 |          | $ | 2,255,924    | $ | 1,924,596  
|Income tax                          | 2(r), 13 |   | (390,381)    |   | (329,980)  
|                                    |          |   |              |   |            
|Income before minority interests    |          | $ | 1,865,543    | $ | 1,594,616  
|Minority interests                  |          |   | (133,840)    |   | (66,754)   
|Net income                          |          |   | 1,731,703    |   | 1,527,862  
|                                    |          |   |              |   |            
|Earnings per share                  | 2(v)     |   |              |   |            
|- basic                             |          | $ | 0.0695       | $ | 0.0852     
|- diluted                           |          | $ | 0.0664       | $ | 0.0852     
|Weighted average shares outstanding |          |   |              |   |            
|- basic                             |          |   | 24,923,179   |   | 17,932,778 
|- diluted                           |          |   | 26,091,382   |   | 17,932,778 

|                                        |               |              
|--------------------------------------- | ------------- | -------------
|                                        |               |              
|                                        | Comprehensive | Comprehensive
|                                        | Income        | Income       
|                                        | 3/31/2008     | 3/31/2007    
|                                        |               |              
|Net Income                              | $             | 1,731,703    
|Foreign Currency Translation Adjustment |               | 887,843      
|                                        |               |              
|                                        | $             | 2,619,546    

See Accompanying Notes to the Financial Statements and
Accountants Report.

3

---



AMERICAN LORAIN CORPORATION 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 
(Stated in US Dollars)

|                                                                        |   | 3/31/2008    |   | 3/31/2007  
|----------------------------------------------------------------------- | - | ------------ | - | -----------
|                                                                        |   |              |   |            
|Cash flows from
    operating activities                                |   |              |   |            
|Net income                                                              | $ | 1,731,703    | $ | 1,527,862  
|Minority interest                                                       |   | 133,840      |   | 101,395    
|Depreciation                                                            |   | 360,568      |   | 159,763    
|Amortization                                                            |   | 27,481       |   | 18,038     
|(Increase)/decrease in accounts & other
    receivables                 |   | 7,070,972    |   | 2,994,953  
|(Increase)/decrease in inventories                                      |   | 3,536,593    |   | 1,086,994  
|Increase/(decrease) in accounts and other
    payables                  |   | (10,011,750) |   | 1,366,749  
|                                                                        |   |              |   |            
|Net cash (used in)/provided by operating
    activities                 | $ | 2,849,407    | $ | 7,255,754  
|                                                                        |   |              |   |            
|Cash flows from
    investing activities                                |   |              |   |            
|Purchase of plant and equipment                                         |   | (3,237,074)  |   | -          
|Sale of plant and equipment                                             |   | -            |   | 887,995    
|Purchase of biological assets                                           |   | (115,731)    |   | -          
|Payment of construction in progress                                     |   | (1,253,155)  |   | -          
|(Increase)/decrease in restricted cash                                  |   | 34,722       |   | 2,221,873  
|Payment of land use rights                                              |   | (131,935)    |   | (1,081,811)
|Investments in securities                                               |   | (772,942)    |   | (263)      
|                                                                        |   |              |   |            
|Net cash used in investing activities                                   | $ | (5,476,115)  | $ | 2,027,794  
|                                                                        |   |              |   |            
|Cash flows from
    financing activities                                |   |              |   |            
|Bank borrowings                                                         |   | 1,066,888    |   | -          
|Bank repayment                                                          |   | -            |   | (3,151,061)
|                                                                        |   |              |   |            
|Net cash provided by/(used in) financing
    activities                 | $ | 1,066,888    | $ | (3,151,061)
|                                                                        |   |              |   |            
|Net Increase/(decrease) of Cash and Cash
    Equivalents                |   | (1,559,820)  |   | 6,132,487  
|                                                                        |   |              |   |            
|Effect of foreign
    currency translation on cash and cash equivalents |   | 1,052,344    |   | 1,653      
|                                                                        |   |              |   |            
|Cash and cash
    equivalentsbeginning of year                         |   | 6,769,973    |   | 2,316,425  
|                                                                        |   |              |   |            
|Cash and cash
    equivalentsend of year                               | $ | 6,262,497    | $ | 8,450,565  
|                                                                        |   |              |   |            
|Supplementary cash
    flow information:                                |   |              |   |            
|Interest received                                                       | $ | 9,378        | $ | 3,053      
|Interest paid                                                           |   | 369,077      |   | 527,210    
|Taxes Paid                                                              |   | 1,705,431    |   | 329,980    

See Accompanying Notes to the Financial Statements and
Accountants Report.

4

---



AMERICAN LORAIN CORPORATION

1.

ORGANIZATION, BASIS OF PRESENTATION,
AND PRINCIPAL ACTIVITIES

(a)

Organization history of American
Lorain Corporation (formerly known as Millennium Quest, Inc.)

American Lorain Corporation (the
"Company" or "ALC") is a Delaware corporation incorporated on February 4, 1986.
From inception through May 3, 2007, the Company did not engage in any active
business operations other than in search and evaluation of potential business
opportunity to become an acquiree of a reverse-merger deal.

(b)

Organizational
history of International Lorain Holding Inc. and its subsidiaries

International Lorain Holding Inc. ("ILH")
is a Cayman Islands company incorporated on August 4, 2006 and was until May 3,
2007 wholly-owned by Mr. Hisashi Akazawa. Through restructuring and acquisition
in 2006, the Company presently has two direct wholly-owned subsidiaries, Junan
Hongrun and Luotian Lorain, and one indirectly wholly-owned subsidiary through
Junan Hongrun, which is Beijing Lorain.

In addition, the Company directly and
indirectly has 80.2% ownership of Shandong Lorain. The rest of the 19.8%, which
is owned by the State under the name of Shandong Economic Development Investment
Co. Ltd., is not included as a part of the Group.

(c)

Reverse-merger

On May 3, 2007, the Company entered
into a share exchange agreement with International Lorain Holding Inc. ("ILH")
whereby the Company consummated its acquisition of ILH by issuance of 697,663
Series B voting convertible preferred shares to the shareholders of ILH in
exchange of 5,099,503 ILH shares. Concurrently on May 3, 2007, the Company also
entered into a securities purchase agreement with certain investors and Mr.
Hisashi Akazawa and Mr. Si Chen (each a "beneficial owner") whereby the Company
issued 319,913 (after reverse-split at 32.84 from 10,508,643) common shares to
its shareholders as consideration of the Companys reverse-merger with Lorain.

The share exchange transaction is
referred to hereafter as the "reverse-merger transaction." The share exchange
transaction has been accounted for as a recapitalization of ALC where the
Company (the legal acquirer) is considered the accounting acquiree and ILH (the
acquiree) is considered the accounting acquirer. As a result of this
transaction, the Company is deemed to be a continuation of the business of ILH.

Accordingly, the accompanying
consolidated financial statements are those of the accounting acquirer, ILH. The
historical stockholders equity of the accounting acquirer prior to the share
exchange has been retroactively restated as if the share exchange
transaction occurred as of the beginning of the first period presented. See also
Note 14 Capitalization.

5

---



AMERICAN LORAIN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(d)

Business activities

The Company develops, manufactures,
and sells convenience foods (such as cut fruit and premixed salads, which are
known as lightly processed; Ready-to-Cook (or "RTC") meals; Ready-to-Eat (or
"RTE") meals and Meals Ready-to-Eat (or "MRE"); chestnut products; and frozen,
canned, and bulk foods, in hundreds of varieties. The Company operates through
indirect Chinese subsidiaries. The products are sold in 19 provinces and
administrative regions in China and 23 foreign countries. Food products are
categorized into three types: (1) chestnut products, (2) convenience food, and
(3) frozen, canned, and bulk food.

2.

SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

(a)

Method of
accounting

The Company maintains its general
ledger and journals with the accrual method accounting for financial reporting
purposes. The financial statements and notes are representations of management.
Accounting policies adopted by the Company conform to generally accepted
accounting principles in the United States of America and have been consistently
applied in the presentation of financial statements, which are compiled on the
accrual basis of accounting.

(b)

Principles of
consolidation

The consolidated financial
statements, which include the Company and its subsidiaries, are compiled in
accordance with generally accepted accounting principles in the United States of
America. All significant inter-company accounts and transactions have been
eliminated. The consolidated financial statements include 100% of assets,
liabilities, and net income or loss of those wholly-owned subsidiaries;
ownership interests of minority investors are recorded as minority interests.

As of March 31, 2008, the detailed
identities of the consolidating subsidiaries are as follows: -

AttributablePlace of
      equity
      RegisteredName of Company
      incorporation
      interest %
      capitalShandong Green Foodstuff Co., Ltd
      PRC
      80.2
      $12,901,823
      (RMB 100,860,000)Luotian Green Foodstuff Co., Ltd
      PRC
      100
      $1,279,181
      (RMB 10,000,000)Junan Hongrun Foodstuff Co., Ltd
      PRC
      100
      $2,430,445
      (RMB 19,000,000)Beijing Green Foodstuff Co., Ltd
      PRC
      100
      $1,279,181
      (RMB 10,000,000)


6

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(c)
Use of estimates

The preparation of the financial
statements in conformity with generally accepted accounting principles in the
United States of America 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 reported amounts of revenues and expenses during the reporting periods.
Management makes these estimates using the best information available at the
time the estimates are made; however, actual results could differ materially
from those estimates.(d)
Economic and
political risksThe Companys operations are
conducted 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 PRC economy.
The Companys operations in the PRC
are subject to special considerations and significant risks not typically
associated with companies in North America and Western Europe. These include
risks associated with, among others, the political, economic and legal
environment and foreign currency exchange. The Companys results may be
adversely affected by changes in the political and social conditions in the PRC,
and by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates
and methods of taxation, among other things.(e)
Lease prepaymentsLease prepayments represent the cost
of land use rights in the PRC. Land use rights are carried at cost and amortized
on a straight-line basis over the period of rights of 50 years.(f)
Property, plant and equipmentPlant and equipment are carried at
cost less accumulated depreciation. Depreciation is provided over their
estimated useful lives, using the straight-line method. Estimated useful lives
of the plant and equipment are as follows:

Buildings
      40 yearsMachinery and
      equipment
      10 yearsMotor vehicles
      10 yearsOffice equipment
      5 years


The cost and related accumulated
depreciation of assets sold or otherwise retired are eliminated from the
accounts and any gain or loss is included in the statement of income. The cost
of maintenance and repairs is charged to income as incurred, whereas significant
renewals and betterments are capitalized.

7

---



AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(g)

Accounting for the impairment of
long-lived assets

The long-lived assets held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. It is reasonably possible that these assets could become impaired
as a result of technology or other industry changes. Determination of
recoverability of assets to be held and used is by comparing the carrying amount
of an asset to future net undiscounted cash flows to be generated by the assets.

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 assets exceeds the fair value of the assets.

Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell. During the
reporting years, there was no impairment loss.

(h)

Construction in
progress

Construction in progress represents
direct costs of construction or acquisition and design fees incurred.
Capitalization of these costs ceases and the construction in progress is
transferred to plant and equipment when substantially all the activities
necessary to prepare the assets for their intended use are completed. No
depreciation is provided until it is completed and ready for intended use.

(i)

Investment
securities

The Company classifies its equity
securities into trading or available-for-sale. Trading securities are bought and
held principally for the purpose of selling them in the near term. All
securities not included in trading securities are classified as
available-for-sale.

Trading and available-for-sale
securities are recorded at fair value. Unrealized holding gains and losses on
trading securities are included in the net income. Unrealized holding gains and
losses, net of the related tax effect, on available for sale securities are
excluded from net income and are reported as a separate component of other
comprehensive income until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific-identification basis.

A decline in the market value of any
available-for-sale security below cost that is deemed to be other-than-temporary
results in a reduction in carrying amount to fair value. The impairment is
charged as an expense to the statement of income and comprehensive income and a
new cost basis for the security is established. To determine whether impairment
is other-than-temporary, the Company considers whether it has the ability and
intent to hold the investment until a market price recovery and considers
whether evidence indicating the cost of the investment is recoverable outweighs
evidence to the contrary. Evidence considered in this assessment includes the
reasons for the impairment, the severity and duration of the impairment, changes
in value subsequent to year end, and forecasted performance of the investee.

8

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
Premiums and discounts are amortized
or accreted over the life of the related available-for-sale security as an
adjustment to yield using the effective-interest method. Dividend and interest
income are recognized when earned.(j)
InventoriesInventories consisting of finished
goods and raw materials are stated at the lower of cost or market value.
Finished goods are comprised of direct materials, direct labor and an
appropriate proportion of overhead.(k)
Trade receivablesTrade receivables are recognized and
carried at the original invoice amount less allowance for any uncollectible
amounts. An estimate for doubtful accounts is made when collection of the full
amount is no longer probable. Bad debts are written off as incurred.(l)
Customer depositsCustomer deposits were received from customers in
connection with orders of products to be delivered in future periods.(m)
Cash and cash equivalentsThe Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.(n)
AdvertisingAll advertising costs are expensed as incurred.(o)
Shipping and handlingAll shipping and handling are expensed as incurred.
9

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(p)
Research and development

All research and development costs are expensed as
incurred.(q)
Retirement benefitsRetirement benefits in the form of
contributions under defined contribution retirement plans to the relevant
authorities are charged to the pro forma consolidated statement of income as
incurred.(r)
Income taxesThe Company accounts for income tax
using an asset and liability approach and allows for recognition of deferred tax
benefits in future years. Under the asset and liability approach, deferred taxes
are provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future realization
is uncertain.(s)
Statutory reservesStatutory reserves are referring to
the amount appropriated from the net income in accordance with laws or
regulations, which can be used to recover losses and increase capital, as
approved, and are to be used to expand production or operations.

(t)

Foreign currency translation

The accompanying financial statements
are presented in United States dollars. The functional currency of the Company
is the Renminbi (RMB). The financial statements are translated into United
States dollars from RMB at year-end exchange rates as to assets and liabilities
and average exchange rates as to revenues and expenses. Capital accounts are
translated at their historical exchange rates when the capital transactions
occurred.

3/31/2008
      12/31/2007
      3/31/2007Year end RMB : US$ exchange rate
      7.0222
      7.3141
      7.7409Average yearly RMB : US$ exchange rate
      7.17568
      7.6172
      7.77136


The RMB is not freely convertible
into foreign currency and all foreign exchange transactions must take place
through authorized institutions. No representation is made that the RMB amounts
could have been, or could be, converted into US$ at the rates used in
translation.

(u)

Revenue recognition

10

---



AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(u)

Revenue recognition

The Company's revenue recognition
policies are in compliance with Staff accounting bulletin (SAB) 104. Sales
revenue is recognized at the date of shipment to customers when a formal
arrangement exists, the price is fixed or determinable, the delivery is
completed, no other significant obligations of the Company exist and
collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.

The Company's revenue consists of
invoiced value of goods, net of a value-added tax (VAT). No product return or
sales discount allowance is made as products delivered and accepted by customers
are normally not returnable and sales discount is normally not granted after
products are delivered.

(v)

Earnings per share

Basic earnings per share is computed
by dividing net income by the weighted average number of ordinary shares
outstanding during the period. Diluted earnings per share is computed by
dividing net income by the sum of the weighted average number of ordinary shares
outstanding and dilutive potential ordinary shares during the years. During the
periods ended March 31, 2008 and December 31, 2007, no dilutive potential
ordinary shares were issued.

The Company computes earnings per
share ("EPS") in accordance with Statement of Financial Accounting Standards No.
128, "Earnings per share" ("SFAS No. 128"), and SEC Staff Accounting Bulletin
No. 98 ("SAB 98"). SFAS No. 128 requires companies with complex capital
structures to present basic and diluted EPS. Basic EPS is measured as the income
or loss available to common shareholders divided by the weighted average common
shares outstanding for the period. Diluted EPS is similar to basic EPS but
presents the dilutive effect on a per share basis of potential common shares
(e.g., convertible securities, options, and warrants) as if they had been
converted at the beginning of the periods presented, or issuance date, if later.
Potential common shares that have an anti-dilutive effect (i.e., those that
increase income per share or decrease loss per share) are excluded from the
calculation of diluted EPS.

(w)

Commitments and
contingencies

Liabilities for loss contingencies
arising from claims, assessments, litigation, fines and penalties and other
sources are recorded when it is probable that a liability has been incurred and
the amount of the assessment can be reasonably estimated.

(x)

Comprehensive
income

Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, all items that are
required to be recognized under current accounting standards as components of
comprehensive income are required to be reported in a financial statement that
is presented with the same prominence as other financial statements. The
Companys current component of other comprehensive income is the foreign
currency translation adjustment.

11

---



AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(y)

Recent accounting pronouncements

In February 2007, the FASB issued
SFAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities  Including an Amendment of SFAS 115" (SFAS No. 159), which allows
for the option to measure financial instruments and certain other items at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. The objective of SFAS 159 is to provide
opportunities to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply hedge
accounting provisions. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities.
This statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007.

In December 2007, the FASB issued
SFAS 141 (revised 2007), Business Combinations, (SFAS 141(R)). SFAS
141(R) retains the fundamental requirements of the original pronouncement
requiring that the purchase method be used for all business combinations, but
also provides revised guidance for recognizing and measuring identifiable assets
and goodwill acquired and liabilities assumed arising from contingencies, the
capitalization of in-process research and development at fair value, and the
expensing of acquisition-related costs as incurred. SFAS 141(R) is effective for
fiscal years beginning after December 15, 2008. In the event that the Company
completes acquisitions subsequent to its adoption of SFAS 141 (R), the
application of its provisions will likely have a material impact on the
Companys results of operations, although the Company is not currently able to
estimate that impact.

In December 2007, the FASB issued
SFAS 160, Noncontrolling Interests in Consolidated Financial Statements an
amendment of ARB No. 51. SFAS 160 requires that ownership interests in
subsidiaries held by parties other than the parent (previously referred to as
minority interests), and the amount of consolidated net income, be clearly
identified, labeled and presented in the consolidated financial statements. It
also requires once a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary be initially measured at fair value.
Sufficient disclosures are required to clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling owners as
components of equity. It is effective for fiscal years beginning after December
15, 2008, and requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. All other requirements are applied
prospectively. The Company does not expect the adoption of SFAS 160 to have a
material impact on its financial condition or results of operations.

12

---



AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

3.

RESTRICTED CASH

Restricted Cash represents interest
bearing deposits placed with banks to secure banking facilities in the form of
loans and notes payable. The restriction of funds is based on time. The funds
that collateralize loans are held for 60 days in savings account that pay
interest at the prescribed national daily savings account rate. For funds that
underline notes payable, the cash is deposited in six month time deposits that
pay interest at the national time deposit rate.

4.

TRADE ACCOUNTS RECEIVABLE

3/31/2008
      12/31/2007Trade Account
      Receivable
      $
      31,443,302
      $
      33,031,997Less:
      Allowance for Doubtful Accounts
      
      (280,794)
      
      (172,309)$
      31,162,508
      $
      32,859,6883/31/2008
      12/31/2007Allowance for Bad
      Debt:Beginning Balance
      $
      172,309
      $
      226,881Additions to
      Allowance
      
      108,485
      
      -Less: Bad
      Debt Written-off
      
      -
      
      (54,572)$
      280,794
      $
      172,309


The Company offers credit terms of between 90 to 180
days to most of their international distributors and between 30 to 90 days for
most of their domestic distributors.

5.

INVENTORY

Inventories at March 31, 2008 and December 31, 2007
consisted of the following:

3/31/2008
      12/31/2007Raw Material
      $
      7,588,594
      $
      5,225,248Finished Goods
      
      8,525,966
      
      12,678,096$
      16,114,560
      $
      17,903,344


13

---



AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

6.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment at March 31, 2008 and
December 31, 2007 consisted of the following:

3/31/2008
      
      12/31/2007At Cost:Buildings
      $
      18,449,587
      $
      15,547,205Biological Assets
      
      2,899,867
      
      2,784,136Machinery and Equipment
      
      6,010,368
      
      5,732,776Office Equipment
      
      97,330
      
      28,520Motor Vehicles
      
      646,837
      
      658,547$
      28,103,989
      $
      24,751,184Less: Accumulated
      DepreciationBuildings
      
      (820,296)
      
      (698,732)Biological Assets
      
      (2,162,083)
      
      (1,954,257)Machinery and Equipment
      
      (59,229)
      
      (15,643)Office Equipment
      
      (306,060)
      
      (318,468)Motor Vehicles
      
      (3,347,668)
      
      (2,987,100)(820,296)
      
      (698,732)Construction in Progress
      
      3,511,252
      
      2,258,097$
      28,267,572
      $
      24,022,181


Construction in progress mainly
comprises capital expenditures for construction of the Companys new corporate
campus, including offices, factories, and staff dormitories. Capital commitments
for the construction are immaterial for the periods disclosed above.

Biological Assets are chestnut tree investments in
the development of agricultural operations, which have not been the significant
source of the raw materials needed for the Companys operations to date.

7.

LAND USE RIGHTS, NET

Land Use Rights at March 31, 2008 and December 31,
2008 consisted of the following: -

3/31/2008
      12/31/2007Land Use Rights, at
      cost
      $
      3,158,219
      $
      3,173,931Less:
      Accumulated amortization
      
      (7,744)
      
      (126,910)$
      3,151,475
      $
      3,047,021


14

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
Land use rights represent the prepaid land use right.
The PRC government owns the land on which the Companys corporate campus is
being constructed.
8.
SHORT-TERM DEBTS
3/31/2008
    
    12/31/2007Loans from Junan
    County Construction Bank Interest rate at 6.264% per annum
    due 8/31/2007
    $
    427,217
    $
    410,167Interest rate at 6.264% per annum due 9/7/2007
    
    357,438
    
    343,173Interest rate at 7.776% per annum due 12/18/2007
    
    -
    
    261,139Interest rate at 7.776% per annum due 12/18/2007
    
    -
    
    355,478Interest
    rate at 8.541% per annum due 3/5/2008
    
    28,311
    
    355,478Interest rate at 8.892% per annum due 7/23/2008
    
    341,773
    
    328,133Interest rate at 6.314% per annum due 9/17/2008
    
    267,366
    
    256,696Loan from Junan
    County Agriculture BankInterest rate at 10.251% per annum due 1/11/2008
    $
    -
    $
    231,061Interest rate at 10.557% per annum due 1/11/2008
    
    -
    
    345,907Interest rate at 11.016% per annum due 2/21/2008
    
    -
    
    191,411Interest
    rate at 11.169% per annum due 6/7/2008
    
    128,165
    
    123,050Interest rate at 11.169% per annum due 6/7/2008
    
    
    
    41,017Interest rate at 11.169% per annum due 6/29/2008
    
    361,710
    
    347,274Interest rate at 11.169% per annum due 6/29/2008
    
    -
    
    109,378Interest rate at 11.169% per annum due 7/3/2008
    
    526,900
    
    505,872Interest rate at 7.884% per annum due 7/18/2008
    
    284,811
    
    273,444Interest rate at 11.628% per annum due 7/25/2008
    
    199,368
    
    191,411Interest rate at 11.628% per annum due 8/1/2008
    
    85,443
    
    82,033Interest rate at 12.393% per annum due 10/30/2008
    
    427,217
    
    410,167Interest rate at 12.393% per annum due 11/11/2008
    
    249,210
    
    239,264Interest rate at 12.393% per annum due 11/14/2008
    
    213,608
    
    205,083Interest rate at 12.393% per annum due 11/14/2008
    
    207,912
    
    199,614Interest rate at 12.393% per annum due 11/22/2008
    
    427,217
    
    410,167Interest rate at 12.393% per annum due 11/29/2008
    
    299,052
    
    287,117Interest rate at 12.393% per annum due 12/4/2008
    
    427,217
    
    410,167Interest rate at 12.393% per annum due 12/13/2008
    
    427,217
    
    410,167Interest rate at 12.699% per annum due 1/4/2009
    
    56,962
    
    -Interest rate at 11.169% per annum due 5/20/2008
    
    170,887
    
    -Interest rate at 12.699% per annum due 1/4/2009
    
    85,443
    
    -Interest rate at 12.699% per annum due 1/4/2009
    
    56,962
    
    -Interest rate at 11.169% per annum due 7/18/2008
    
    327,533
    
    -Interest rate at 11.169% per annum due 6/30/2008
    
    79,747
    
    -

15

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

Interest rate at 11.169% per annum due
    2/1/2009
    
    113,924
    
    -Interest rate at 12.70% per annum due
    3/20/2009
    
    56,962
    
    -Interest rate at 11.169% per annum due
    5/6/2008
    
    199,368
    
    -Interest rate at 11.169% per annum due
    6/26/2008
    
    655,065
    
    -Interest rate at 11.169% per annum due
    6/12/2008
    
    807,439
    
    -Interest rate at 11.169% per annum due
    6/19/2008
    
    142,406
    
    -Interest rate at 11.169% per annum due
    6/19/2008
    
    37,025
    
    -Loan from Junan County Industrial and
    Commercial BankInterest rate at 6.120% per annum due
    1/11/2007
    $
    -
    $
    546,889Interest rate at 8.424% per annum due
    3/7/2007
    
    -
    
    806,661Interest rate at 6.120% per annum due
    11/10/2007
    
    -
    
    136,722Interest rate at 8.073% per annum due
    12/7/2007
    
    -
    
    1,278,353Interest rate at 7.956% per annum due
    1/18/2008
    
    -
    
    478,528Interest rate at 7.956% per annum due
    1/18/2008
    
    -
    
    546,889Interest rate at 6.9545% per annum due
    2/8/2008
    
    -
    
    604,299Interest rate at 6.570% per annum due
    2/8/2008
    
    -
    
    546,889Interest rate at 7.956% per annum due
    3/5//2008
    
    -
    
    1,367,222Interest rate at 8.892% per annum due
    3/7/2008
    
    -
    
    410,167Interest rate at 6.12% per annum due
    6/30/2008
    
    -
    
    706,766Interest rate at 7.290% per annum due
    6/30/2008
    
    241,508
    
    232,428Interest rate at 9.71% per annum due
    7/10/2008
    
    92,564
    
    -Interest rate at 9.71% per annum due
    8/8/2008
    
    48,418
    
    -Interest rate at 8.541% per annum due
    4/20/2008
    
    220,729
    
    -Interest rate at 9.711% per annum due
    12/22/2008
    
    199,368
    
    -Interest rate at 6.57% per annum due
    4/17/2008
    
    410,128
    
    -Interest rate at 8.541% per annum due
    4/30/2008
    
    195,096
    
    -Interest rate at 7.47% per annum due
    11/1/2008
    
    398,735
    
    -Interest rate at 7.47% per
    annum due 12/1/2008
    
    569,622
    
    -Interest rate at 8.541% per annum due
    6/4/2008
    
    291,931
    
    -Interest rate at LIBOR+1.5% per annum
    due 6/6/2008
    
    736,144Interest rate at LIBOR+1.5% per annum
    due 6/13/2008
    
    629,417Loan from Junan County Merchants BankInterest rate at 6.210% per annum due
    3/13/2008
    $
    -
    $
    1,367,222Loan from Junan County Agricultural
    Financial InstitutionInterest rate at 12.15% per annum due
    5/20/2008
    $
    27,057
    $
    25,977Interest rate at 12.420% per annum due
    6/20/2008
    
    71,203
    
    68,361Interest rate at 10.935% per annum due
    10/1/2008
    
    2,705,705
    
    2,597,722


16

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

Loan from Linyi
    Commercial BankInterest rate at 10.71% per
    annum due 2/9/2008
    $
    -
    $
    497,221Interest rate at 13.73% per
    annum due 12/25/2008
    
    142,406
    
    136,722Interest rate at 13.73% per
    annum due 1/5/2009
    
    669,306
    
    -Interest rate at 13.73% per
    annum due 1/12/2009
    
    640,825
    
    -Loan from Junan
    Agricultural Development BankInterest rate at 7.290% per
    annum due 9/26/2008
    $
    1,424,055
    $
    1,367,222Loan from China
    Agricultural Bank, Luotian BranchInterest rate at 7.722% per
    annum due 8/28/2008
    $
    1,082,282
    $
    1,039,089Bank of China,
    Junan BranchInterest rate at 7.500% per
    annum due 5/19/2009
    $
    -
    $
    9,815Interest rate at 7.840% per
    annum due 5/17/2009
    
    9,206
    
    -International Trust
    Co., Ltd.Interest rate at 5.76% per
    annum due 6/13/2008
    $
    1,424,055
    $
    1,367,222United Commercial
    Bank, China BranchInterest rate at 5.494% per
    annum due 1/14/2009
    $
    1,022,472
    $
    -Luotian
    Agricultural Cooperation Development Office
    Interest rate at 2.1% per annum due
    12/11/2011
    $
    24,921
    $
    -$
    21,754,028
    $
    24,077,504


The loans, which are denominated in the functional currency Renminbi (RMB),
were primarily obtained for general working capital.

All overdue loans were extended by its financial institution.

17

---



AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

9.

NOTES PAYABLE

The notes payable, which are denominated in the
functional currency of Renminbi, at March 31, 2008 and December 31, 2007, are
presented in US dollars as follows:

3/31/2008
      
      12/31/2007Notes to Industrial and Commercial Bank,Bank commission charge at
      3.99% due December 20, 2007
      $
      -
      $
      546,888Bank commission charge at
      3.99% due December 12, 2007
      
      -
      
      1,093,778Bank commission charge at
      3.99% due December 18, 2007
      
      -
      
      1,093,778Bank commission charge at
      7.24% due September 4, 2008
      
      284,811
      
      -Bank commission charge at
      7.24% due September 4, 2008
      
      569,622
      
      -Bank commission charge at
      7.24% due September 4, 2008
      
      569,622
      
      -Bank commission charge at
      7.20% due September 19, 2008
      
      569,622
      
      -Bank commission charge at
      7.20% due September 19, 2008
      
      284,811
      
      -Bank commission charge at
      7.20% due September 19, 2008
      
      569,622
      
      -Notes to Shenzhen
      Development Bank,Bank commission charge at
      6.50%, due May 15, 2008
      
      1,424,055
      
      -Bank commission charge at
      6.50%, due May 15, 2008
      
      1,424,055
      
      -$
      5,696,221
      $
      2,734,444


All overdue notes were extended by its financial
institution.

10.

LONG-TERM DEBTS

3/31/2008
      
      12/31/2007Loan from Agricultural Development
      Luotian Government,Interest rate at 0.67% per annum due 12/11/2010
      $
      106,804
      $
      102,542Loan from United Commercial Bank, China
      BranchInterest rate at 5.494% per annum due 1/14/2009
      
      424,326
      
      -Less: Current maturities of
      long-term debts
      
      
      
      -$
      531,130
      $
      102,542


Interest expenses for long-term debt were $6,007 and
$687 for the period ended March 31, 2008 and the year ended December 31, 2007.

The Loan from Agricultural Development Luotian
Government is due in full at December 11, 2010. There is no current portion at
December 31, 2007.

18

---



AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

11.

MINORITY INTERESTS

Minority interests represent the 19.8% equity of
Shangdong Lorain held by a state-owned enterprise, Shandong Economic Development
Investment Corporation.

12.

CAPITALIZATION

As a result of the reverse-merger on
May 3, 2007 involving an exchange of shares, the total number of 24,923,178
shares of the Companys common stock issued and outstanding at March 31, 2008
and December 31, 2007 as depicted in the following table: -

AdditionalNumber of
    
    Common
    
    Paid-inName of
    Shareholder
    Share
    Stock Capital
    
    CapitalShareholders of
    International Lorain Holding Inc. (697,663 Series B
    preferred shares converted to common
    shares at one for 23.375 Split
    16,307,872
    $
    16,308
    $
    -Halter Financial Investments LP and other (100,000 Series A preferred shares
    converted to common shares:100,000 x 428.56 =
    42,856,000 / 32.84)Reversed-split
    1,304,992
    
    1,305
    
    -Original Shareholders
    of Millennium Quest Inc. (Shell) 10,508,643
    shares / 32.84 reverse-split adjusted
    for round-down
    319,913
    
    320
    
    -Original additional
    paid-in capital from the 4 PRC subsidiaries
    -
    
    -
    6,846,620Issuance of common
    stock for cash
    6,990,401
    
    6,990
    
    17,340,64824,923,178
    $
    24,923
    $
    24,187,268


19

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
13.INCOME TAXES

All of the Groups income before
income taxes and related tax expenses are from PRC sources. In accordance with
the relevant tax laws and regulations of PRC, the corporation income tax rate
was 33% for all periods before December 31, 2007. However, also in accordance
with the relevant taxation laws in the PRC, some of the subsidiaries of the
Group are eligible for tax exemption. In particular, from the time that a
company has its first profitable tax year, the company is exempt from corporate
income tax for its first two year and is then entitled to a 50% tax reduction
for the succeeding three year. Actual income tax expenses reported in the
consolidated statements of income and comprehensive income differ from the
amounts computed by applying the PRC statutory income tax rate of 33% to income
before income tax for the period from August 4, 2006 (date of incorporation) to
December 31, 2007, and 25% for periods thereafter, for the following reasons: -

3/31/2008
      
      3/31/2007Effect of tax
      exemption granted
      $
      2,255,924
      $
      1,924,596Tax Rate
      
      25%
      
      33%Tax at the income
      tax rate
      
      563,981
      
      635,117Effect of tax
      exemption granted
      
      173,600
      
      305,137Income tax
      $
      390,381
      $
      329,980Per Share
      Effect of Tax Exemption3/31/2008
      
      3/31/2007Effect of tax
      exemption granted
      $
      173,600
      $
      305,137Weighted-Average
      Shares Outstanding
      
      24,923,179
      
      17,932,778Per share effect
      $
      0.0070
      $
      0.0170


Effective January 1, 2008, PRC
government implemented a new 25% tax rate across the board for all enterprises
regardless of whether domestic or foreign enterprise without any tax holiday
which is defined as "two-year exemption followed by three-year half exemption"
hitherto enjoyed by taxpayers. As a result of the new tax law of a standard 15%
tax rate, tax holidays terminated as of December 31, 2007. However, PRC
government has established a set of transition rules to allow enterprises that
already started tax holidays before January 1, 2008, to continue enjoying the
tax holidays until being fully utilized.

20

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
Based on the background of each constituent of our
group, the income tax rates applicable to the four constituents for 2007, 2008,
and 2009 are depicted in the following table.

Income Tax
      Rate
      2007
      2008
      2009Junan Hongran
      15%
      12.5%
      25%Luotian Lorain
      0%
      12.5%
      12.5%Beijing Lorain
      0%
      0%
      12.5%Shangdong Lorain
      30%
      25%
      25%


14.

SALES BY PRODUCT TYPE

Sales by categories of product at March 31, as
follow: -

Category
      
      3/31/2008
      
      3/31/2007Chestnut
      $
      10,969,045
      $
      8,772,816Meat
      
      701,772
      
      426,746Vegetable
      
      5,745,398
      
      2,699,250Others
      
      12,084
      
      -Total
      $
      17,428,299
      $
      11,898,812Revenue
      by geography at March 31, was as follows: -Country
      
      3/31/2008
      
      3/31/2007Belgium
      $
      670,834
      $
      382,200Canada
      
      -
      
      13,832China
      
      12,831,157
      
      7,779,207France
      
      92,522
      
      32,513Hong Kong
      
      43,117
      
      -Japan
      
      1,818,668
      
      2,374,841Korea
      
      892,646
      
      524,887Kuwait
      
      -
      
      34,252Malaysia
      
      145,553
      
      138,837Netherlands
      
      180,540
      
      -Saudi Arabia
      
      107,574
      
      459,780Singapore
      
      59,400
      
      67,591Taiwan
      
      24,564
      
      -UK
      
      532,883
      
      -USA
      
      28,841
      
      90,873Total
      $
      17,428,299
      $
      11,898,812


21

---

AMERICAN LORAIN CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in US Dollars) 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
15.
EARNINGS PER SHARE
Three Months
      Three MonthsEnded
      
      EndedMarch 31, 2008
      March 31, 2007Net
      Income (A)
      $
      1,731,703
      $
      1,527,862Basic
      Weighted Average Shares Outstanding (B)Dilutive
      Shares:
      
      24,923,179
      
      17,932,778-Addition to Common Stock from PotentialExercise of Warrants (C)
      
      1,168,203
      
      -Diluted
      Weighted Average Shares Outstanding: (D)
      
      26,091,382
      
      17,932,778Earnings Per Share-Basic (A)/(B)
      $
      0.0695
      $
      0.0852-Diluted (A)/(D)
      $
      0.0664
      $
      0.0852Weighted Average Shares Outstanding-Basic
      
      24,923,179
      
      17,932,778-Diluted
      
      26,091,382
      
      17,932,77816.
APPOINTMENT OF INVESTOR RELATIONS
FIRMOn March 13, 2008, the Company hired CCG Elite to
provide communications related to the Companys operating performance and
financial position to its various stakeholders.
22

---

ITEM 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
Caution Regarding Forward-Looking Information
Certain statements contained in this quarterly filing,
including, without limitation, statements containing the words "believes",
"anticipates", "expects" and words of similar import, constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
Such factors include, among others, the following:
international, national and local general economic and market conditions:
demographic changes; the ability of the Company to sustain, manage or forecast
its growth; the ability of the Company to successfully make and integrate
acquisitions; raw material costs and availability; new product development and
introduction; existing government regulations and changes in, or the failure to
comply with, government regulations; adverse publicity; competition; the loss of
significant customers or suppliers; fluctuations and difficulty in forecasting
operating results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; the ability
to protect technology; and other factors referenced in this and previous
filings.
Given these uncertainties, readers of this Form 10-Q and
investors are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
Overview

We are a Delaware corporation that was incorporated on
February 4, 1986 and we are headquartered in Shandong Province, China. From our
inception in 1986 until May 3, 2007, when we completed a recapitalization
transaction with Lorain Holding which was incorporated in the Cayman Islands in
August 2006, we were a blank check company and did not engage in active business
operations other than our search for, and evaluation of, potential business
opportunities for acquisition or participation.
As an integrated food manufacturing company, our products mix
varies by season. We develop, manufacture and sell chestnut products,
convenience foods (foods like cut fruit and premixed salads, which are known as
lightly processed, our convenience foods include ready-to-cook (or RTC) meals,
ready-to-eat (or RTE) meals and meals ready-to-eat (or MREs)), and frozen,
canned and bulk foods, in hundreds of varieties. We operate through our indirect
Chinese subsidiaries. Our production activities are in China and we derive most
of our revenue from sales in China, Japan and Korea. In 2007, we expanded our
sales in Europe and Middle East, and continued to have robust development in
these markets. Our products are sold in 23 provinces and administrative regions
in China and 42 foreign countries.
23
American Lorain Corporation owns 100% of Lorain Holding.
Lorain Holding presently has two direct, wholly-owned Chinese operating
subsidiaries, Luotian Lorain and Junan Hongrun, one indirect wholly-owned
operating subsidiary, Beijing Lorain, and one majority-owned subsidiary,
Shandong Lorain, which is 80.2% owned by us (with Shandong Economic Development
Investment Co. Ltd. owning the remaining 19.8% interest). Shandong Lorain was
formed in 1995; Junan Hongrun was formed in 2002, and Luotian Lorain and Beijing
Lorain were both formed in 2003. We sometimes refer to these four Chinese
operating subsidiaries as the Lorain Group Companies. Below is an organizational
chart showing our ownership of the Lorain Group Companies:Background and History of Lorain Holding and its Operating
Subsidiaries and Affiliates

On May 3, 2007, we completed a recapitalization of Lorain
Holding through a share exchange with Lorain Holdings former stockholders. Upon
completion of the recapitalization, Lorain Holding became our wholly-owned
direct subsidiary and we have assumed indirect ownership of the business
operations and strategy of Lorain Holding and its Chinese subsidiaries. On July
17, 2007, we changed our name from "Millennium Quest, Inc." to "American Lorain
Corporation" to better reflect our new business plan and strategy.
24
Acquisition of Lorain Holding and Our Related Equity
Financing Transaction
On April 10, 2007, Millennium Quest, Inc. (which would later
become our corporate parent and change its name to American Lorain Corporation)
completed the sale of an aggregate of 100,000 restricted shares of its Series A
Preferred Stock to HFI for a cash purchase price of $455,000 pursuant to a Stock
Purchase Agreement entered into between Millennium Quest, Inc. and HFI dated as
of April 5, 2007. The Series A Preferred Stock issued was entitled to 428.56
votes per share and represented approximately 90% of the capital stock and
voting control of the Company as of the date of such acquisition.
Through the recapitalization of Lorain Holding we acquired
all of the issued and outstanding capital stock of Lorain Holding, which became
our wholly-owned subsidiary, and in exchange for that capital stock we issued to
the former stockholders of Lorain Holding 697,663 shares of our Series B Voting
Convertible Preferred Stock, which were subsequently converted into 16,307,872
shares of our common stock on July 17, 2007, immediately following the
effectiveness of an amendment to our charter that, among other things, increased
the number of our authorized shares of common stock from 20,000,000 to
200,000,000.Upon the consummation of the recapitalization, the former
stockholders of Lorain Holding became our controlling stockholders.
Upon the closing of the recapitalization, Timothy P. Halter,
our former sole director and officer, submitted his resignation letter pursuant
to which he resigned from all offices of American Lorain that he held effective
immediately and from his position as our director that became effective on May
13, 2007, the tenth day following the mailing by us of an information statement
to our stockholders that complies with the requirements of Section 14f-1 of the
Securities Exchange Act of 1934. Si Chen, our Chairman, was appointed as our
director and Chairman at the closing of the recapitalization of Lorain Holding
and Mr. Chen became the sole director on the board of the directors on May 13,
2007, when Mr. Halters resignation from the board became effective.
Contemporaneous with the recapitalization, we also completed
a private placement transaction in which we issued and sold to accredited
investors 604,674 shares of our Series B Voting Convertible Preferred Stock for
gross proceeds of approximately $19.8 million. These shares of Series B Voting
Convertible Preferred Stock were converted into 6,990,401 shares of our common
stock. The conversion took place at the effective time of an amendment to our
certificate of incorporation that, among other things, increased the number of
shares of our authorized common stock from 20,000,000 to 200,000,000. We had to
increase our authorized common stock so that there would be enough shares of
authorized common stock available for issuance upon conversion of our Series B
Voting Convertible Preferred Stock.
In connection with the private placement mentioned above, our
majority stockholder, Mr. Akazawa, entered into a Securities Purchase Agreement
and make good escrow agreement with the private placement investors (the "SPA
Agreement" and the "Make Good Escrow Agreement", respectively). Pursuant to the
Make Good Escrow Agreement, Mr. Akazawa agreed to certain "make good"
provisions. In theMake Good Escrow Agreement, we established minimum
after tax net income thresholds of $9.266 million for the fiscal year ending
December 31, 2007 and $12.956 million for the fiscal year ending December 31,
2008, and provided that the minimum after tax net income thresholds for the
fiscal year 2007 or for the fiscal year 2008 were not achieved, then the
investors would be entitled to receive additional shares of our common stock
based upon a pre-defined formula agreed to between the investors and Mr. Akazawa.
Mr. Akazawa deposited a total of 302,365 shares of our Series B Voting
Convertible Preferred Stock, which have subsequently been converted into
14,134,254 shares of our common stock, into escrow with Securities Transfer
Corporation under the Make Good Escrow Agreement.
25
Pursuant to Section 5 of the Make Good Escrow Agreement,
since the minimum after tax net income threshold for the fiscal year 2007 was
achieved, Mr. Akazawa will be entitled to receive back the 2007 make good escrow
shares (as defined in the SPA Agreement) deposited with the Securities Transfer
Corporation.
Pursuant to Section 5 of the SPA Agreement, the term
"after-tax net income" is defined to mean the after-tax net income of the
Company and its consolidated subsidiaries prepared in accordance with GAAP
consistently applied; provided in the event that the release of the 2007 Make
Good Shares to the Investors or the Beneficial Owners is deemed to be an expense
or deduction from revenues/income of the Company for the applicable year, as
required under GAAP, then such expense or deduction shall be excluded for
purposes of determining whether or not the 2007 minimum after tax net income
threshold has been achieved by the Company.
Uncertainties that Affect our Financial Condition

We do not have any material uncertainties that affect our
financial condition as of March 31, 2008.
Results of Operations

The following table summarizes the results of our operations
during the three-month periods ended March 31, 2008 and ended March 31, 2007
respectively, and provides information regarding the dollar and percentage
increase or (decrease) from the three-month period ended March 31, 2007 to the
three-month period ended March 31, 2008.



26

---



(All amounts, other than percentages, stated in US dollars)

|                                     |   | Three months ended March 31, |   | Dollar ($)          | Percentage
(%)
|------------------------------------ | - | ---------------------------- | - | ------------------- | --------------
|                                     |   | 2008
(In Thousands)          |   | 2007
(In Thousands) |               
|                                     |   |                              |   |                     |               
|Revenue                              |   |                              |   |                     |               
|Net revenues                         | $ | 17,428                       | $ | 11,899              |               
|Cost of goods sold                   |   | (13,480)                     |   | (8,953)             |               
|                                     |   |                              |   |                     |               
|Gross profit                         |   | 3,948                        |   | 2,946               |               
|                                     |   |                              |   |                     |               
|Operating expenses                   |   |                              |   |                     |               
|Selling and marketing expenses       |   | (619)                        |   | (126)               |               
|General and administrative expenses  |   | (544)                        |   | (360)               |               
|                                     |   |                              |   |                     |               
|                                     |   |                              |   |                     |               
|                                     |   |                              |   |                     |               
|Income from continuing operations    |   | 2,785                        |   | 2,945               |               
|                                     |   |                              |   |                     |               
|Finance costs, net                   |   | (590)                        |   | (566)               |               
|Government grant                     |   | 33                           |   | 8                   |               
|Sundry                               |   | -                            |   | -                   |               
|Other income                         |   | 39                           |   | 26                  |               
|Other expenses                       |   | (10)                         |   | (4)                 |               
|                                     |   |                              |   |                     |               
|Income before taxation               |   | 2,256                        |   | 1,925               |               
|Income tax                           |   | (390)                        |   | (330)               |               
|                                     |   |                              |   |                     |               
|Net income before minority interests |   | 1,866                        |   | 2,943               |               
|Minority interests                   |   | (134)                        |   | (66)                |               
|                                     |   |                              |   |                     |               
|Net income                           | $ | 1,732                        | $ | 1,528               | $             

Net Revenues. Our net revenues for the three months ended
March 31, 2008 were $17.43 million, which is approximately $5.53 million or 46%
more than net revenues during the same period in 2007, which were $11.90
million. This increase was mainly attributable to increased sales resulting from
the continuing advancement of our marketing strategies to enhance our
competitive advantages, the significant adjustment of our operation structures,
and expansion of our sales markets.In the first quarter of 2008, we have
increased our sales in our domestic markets and in the European markets. In some
European markets, such as France and Belgium, we have increased our sales volume
by more than 100% compared with the same period of last year.

Cost of Goods Sold. Our cost of goods sold, which
consists of raw materials, direct labor and manufacturing overhead expenses, was
$13.48 million for the three month period ended March 31, 2008, an increase of
$4.53 million, or 51%, as compared to $8.95 million for the three month period
ended March 31, 2007. This increase was mainly attributable to increased volume
of products sold and the increased labor expense.

27

---



Gross Profit. Our gross profit increased $1.00 million,
or 34 %, to $ 3.95 million for the three months ended March 31, 2008 from $2.94
million for the same period in 2007. This increase was mainly attributable to
the increase in sales.

Selling and Marketing Expenses. Selling and marketing
expenses increased $ 0.49 million, or 391%, to $0.62 million for the three
months ended March 31, 2008 from $0.13 million for the same period in 2007. This
increase mainly resulted from increased transportation cost for the
Corporations expanded business.

General and Administrative Expenses. General and
administrative expenses increased $ 0.18 million, or 51 %, to $0.54 million for
the three months ended March 31, 2008 from $0.36 million for the same period of
2007.This increase was mainly attributable to more managing staffs
salary expense and their benefit expenses as the Corporation recruited more
staff for its expanded business.

Income Before Income Taxes and Minority Interest. Income
before income taxes and minority interest increases $0.33 million, or 17 %, to
$2.26 million for the three months ended March 31, 2008 from $1.92 million for
the same period of 2007. The increase was primarily attributed to the
substantial increase of revenues.

Income Taxes. Income taxes increased $0.06 million, or 18
%, to $ 0.39 million for the three months ended March 31, 2008 from $0.33
million for the same period of 2007. The increase in income taxes was primarily
a result of higher income achieved in this period.

We operate through our three directly or indirectly
wholly-owned subsidiaries Junan Hongrun, Luotian Lorain, and Beijing Lorain and
one majority-owned subsidiary, Shandong Lorain, in which we own 80.2% of the
equity (directly and indirectly). As approved by local tax authorities in the
PRC, all four companies were granted a "tax holiday" that allows them to be
exempt from both the national and local income taxes for the first two
profitable years followed by a 50% tax exemption in the next three years. The
four companies started to enjoy the preferential tax policy from 2001, 2004,
2006 and 2007 respectively. The table below shows the detailed income tax rate
for the four companies.

|Income Tax Rate | 2004 | 2005 | 2006 | 2007  | 2008  | 2009  
|--------------- | ---- | ---- | ---- | ----- | ----- | ------
|Junan Hongrun   | 0%   | 0%   | 15%  | 15%   | 15%   | 25%   
|Luotian Lorain  | 33%  | 33%  | 0%   | 0%    | 15%   | 15%   
|Beijing Lorain  | 33%  | 33%  | 33%  | 0%(1) | 0%(1) | 15%(1)
|Shandong Lorain | 15%  | 15%  | 30%  | 30%   | 25%   | 25%   

(1) We are attempting to obtain a tax holiday with respect to
Beijing Lorain that would bring our tax rate to 0%, 0% and 15% for Beijing
Lorain for the tax years ending December 31, 2007, 2008 and 2009 respectively.

Net Income. Net income increased $0.20 million , or 13%,
to $1.73 million for the three months ended March 31, 2008 from $1.53 million
for the same period of 2007.

28

---



Liquidity and Capital Resources

General

As of March 31, 2008, we had cash and cash equivalents
(including restricted cash) of $ 6.26 million. The following table provides
detailed information about our net cash flow for all financial statements
periods presented in this report.

|                                                    |  | Cash Flow (in thousands)
Three Months Ended March 31,
|--------------------------------------------------- |  | -----------------------------------------------------
|                                                    |  | 2008                                                 
|Net cash provided by (used in) operating activities |  | 2,849                                                
|Net cash provided by (used in) investing activities |  | (5,476)                                              
|Net cash provided by (used in) financing activities |  | 1,067                                                
|Net cash flow (outflow)                             |  | (1,560)                                              

Operating Activities

Net cash provided by operating activities was $2.85 million
for the three months period ended March 31, 2008, which is an decrease of $4.41
million from $7.26 million for the same period of 2007. The decreaseof
the cash provided by operating activities was primarily a result of the
repayment of accounts and other payables in 2008, as compared to the year of
2007.

Investing Activities

Our main uses of cash for investment activities are payments
for the acquisition of property, plants and equipment.

Net cash used for investing activities for the three month
period ended March 31, 2008 was ($5.48) million, which is a decrease of $7.51
million compared to the same period in 2007. The decrease was primarily due to
the purchase of plants and equipment in 2008.

Financing Activities

Net cash provided by financing activities for the three
months period ended March 31, 2008 was $1.07 million, which is an increase of
$4.22 million from ($3.15) million net cash used in financing activities during
the same period of 2007. The increase of the cash used in financing activities
was primarily a result of the increase of bank borrowing.

Loan Facilities

As of March 31, 2008, the amounts and maturity dates for our
bank loans were as follows:

29

---



All amounts, other than
percentages, in thousands of US dollars.

|Banks                                       | Amounts  | Beginning  | Ending     | Interest Rate | Duration 
|------------------------------------------- | -------- | ---------- | ---------- | ------------- | ---------
|Beijing rural credit cooperatives           | 2,705.70 | 9/29/2007  | 9/29/2008  | 10.935%       | 12 months
|Bank of Beijing Co., Ltd.                   | 284.81   | 7/18/2007  | 7/18/2008  | 7.884%        | 12 months
|International Trust & Investment Co., Ltd.  | 1,424.06 | 6/13/2005  | 6/13/2008  | 7.84%         | 36 months
|Junan County Industrial and Commercial Bank | 736.15   | 12/6/2007  | 6/30/2008  | 6.12%         | 7months  
|Junan County Industrial and Commercial Bank | 629.42   | 12/13/2007 | 5/31/2008  | 6.95%         | 5months  
|Junan County Industrial and Commercial Bank | 241.51   | 12/12/2007 | 6/30/2008  | 7.29%         | 6months  
|Junan County Industrial and Commercial Bank | 92.56    | 1/30/2008  | 7/10/2008  | 9.71%         | 5 months 
|Junan County Industrial and Commercial Bank | 48.42    | 1/30/2008  | 8/08/2008  | 9.71%         | 6months  
|Junan County Industrial and Commercial Bank | 220.73   | 1/11/2008  | 4/20/2008  | 8.541%        | 3 months 
|Junan County Industrial and Commercial Bank | 199.37   | 1/23/2008  | 12/22/2008 | 9.711%        | 11 months
|Junan County Industrial and Commercial Bank | 410.13   | 1/24/2008  | 4/17/2008  | 6.570%        | 3months  
|Junan County Industrial and Commercial Bank | 195.10   | 1/25/2008  | 4/30/2008  | 8.541%        | 3 months 
|Junan County Industrial and Commercial Bank | 398.74   | 2/03/2008  | 11/01/2008 | 7.470%        | 9 months 
|Junan County Industrial and Commercial Bank | 569.62   | 2/03/2008  | 12/01/2008 | 7.470%        | 10 months
|Junan County Industrial and Commercial Bank | 291.93   | 2/25/2008  | 6/04/2008  | 8.541%        | 3months  
|Junan County Construction Bank              | 427.22   | 8/31/2007  | 8/31/2008  | 6.26%         | 12 months
|Junan County Construction Bank              | 357.44   | 9/08/2007  | 9/07/2008  | 6.26%         | 12months 
|Junan County Construction Bank              | 28.31    | 6/06/2007  | 3/05/2008  | 8.541%        | 9 months 
|Junan County Construction Bank              | 341.77   | 7/24/2007  | 7/23/2008  | 8.892%        | 12 months
|Junan County Construction Bank              | 267.37   | 9/18/2007  | 9/17/2008  | 6.314%        | 12 months
|Junan County Agriculture Bank               | 56.96    | 1/05/2008  | 1/04/2009  | 12.699%       | 12 months
|Junan County Agriculture Bank               | 170.89   | 1/05/2008  | 5/20/2008  | 11.169%       | 4 months 
|Junan County Agriculture Bank               | 85.44    | 1/05/2008  | 1/04/2009  | 12.699%       | 12 months

|Junan County Agriculture Bank | 56.96  | 1/05/2008  | 1/04/2009  | 12.699% | 12 months
|----------------------------- | ------ | ---------- | ---------- | ------- | ---------
|Junan County Agriculture Bank | 327.53 | 1/28/2008  | 7/18/2008  | 11.169% | 6 months 
|Junan County Agriculture Bank | 79.75  | 1/28/2008  | 6/30/2008  | 11.169% | 5 months 
|Junan County Agriculture Bank | 113.92 | 2/02/2008  | 1/01/2009  | 12.699% | 11 months
|Junan County Agriculture Bank | 128.16 | 6/14/2007  | 6/07/2008  | 11.17%  | 12 months
|Junan County Agriculture Bank | 361.71 | 6/30/2007  | 6/29/2008  | 11.17%  | 12 months
|Junan County Agriculture Bank | 526.90 | 4/04/2007  | 7/03/2008  | 11.17%  | 15 months
|Junan County Agriculture Bank | 199.37 | 8/02/2007  | 7/25/2008  | 11.63%  | 11 months
|Junan County Agriculture Bank | 427.22 | 10/31/2007 | 10/30/2008 | 12.39%  | 12 months
|Junan County Agriculture Bank | 249.21 | 11/12/2007 | 11/11/2008 | 12.39%  | 12 months
|Junan County Agriculture Bank | 213.61 | 11/15/2007 | 11/14/2008 | 12.39%  | 12 months
|Junan County Agriculture Bank | 207.91 | 11/15/2007 | 11/14/2008 | 12.39%  | 12 months
|Junan County Agriculture Bank | 427.22 | 11/23/2007 | 11/22/2008 | 12.39%  | 12 months
|Junan County Agriculture Bank | 299.05 | 11/30/2007 | 11/29/2008 | 12.39%  | 12 months
|Junan County Agriculture Bank | 427.22 | 12/05/2007 | 12/04/2008 | 12.39%  | 12 months
|Junan County Agriculture Bank | 427.22 | 12/14/2007 | 12/13/2008 | 12.39%  | 12 months
|Junan County Agriculture Bank | 85.44  | 8/02/2007  | 8/01/2008  | 11.63%  | 12 months

30

---



|                                                             |           |            |            |         |          
|------------------------------------------------------------ | --------- | ---------- | ---------- | ------- | ---------
|Junan County Agriculture Bank                                | 56.96     | 3/21/2008  | 3/20/2009  | 12.70%  | 12 months
|Junan County Agriculture Bank                                | 199.37    | 1/28/2008  | 5/06/2008  | 11.169% | 3  months
|Junan County Agriculture Bank                                | 655.07    | 3/26/2008  | 6/26/2008  | 11.169% | 3 months 
|Junan County Agriculture Bank                                | 807.44    | 3/13/2008  | 6/12/2008  | 11.169% | 3 months 
|Junan County Agriculture Bank                                | 142.41    | 3/21/2008  | 6/19/2008  | 11.169% | 3 months 
|Junan County Agriculture Bank                                | 37.03     | 3/21/2008  | 6/19/2008  | 11.169% | 3 months 
|Union Bank (China) Co., Ltd.                                 | 1,022.47  | 1/28/2008  | 1/14/2009  | 5.494%  | 12 months
|Linyi Commercial Bank                                        | 142.41    | 12/25/2007 | 12/25/2008 | 13.073% | 12 months
|Linyi Commercial Bank                                        | 669.31    | 2/01/2008  | 1/05/2009  | 13.073% | 11 months
|Linyi Commercial Bank                                        | 640.82    | 2/02/2008  | 1/12/2009  | 13.073% | 11 months
|China Agricultural Bank, Luotian Square Branch               | 1,082.28  | 8/30/2007  | 8/28/2008  | 7.722%  | 12 months
|Luotian County Comprehensive Agricultural Development Office | 24.92     | 1/11/2008  | 12/11/2011 | 2.100%  | 47 months
|Rural Credit Cooperatives                                    | 27.06     | 11/20/2007 | 5/20/2008  | 9.75%   | 6 months 
|Rural Credit Cooperatives                                    | 71.20     | 12/20/2007 | 6/20/2008  | 12.42%  | 6 months 
|Junan Agricultural Development Bank                          | 1,424.06  | 9/28/2007  | 9/26/2008  | 7.290%  | 12 months
|Bank of China, Junan Branch                                  | 9.21      | 9/19/2006  | 5/19/2009  | 7.50%   | 36 months
|Total                                                        | 21,754.07 |            |            |         |          

As shown in the above table, we have $0.028 million in loans
maturing on or before the end of March 31, 2008.

In past years, including 2007, we financed our operations
through net income and bank loans. We have maintained a good relationship with
four major national banks in China (International Trust & Investment Co., Ltd.,
Junan County Construction Bank, Junan County Industrial and Commercial Bank and
Junan Agricultural Development Bank) that have provided us with sufficient
support of funding through short-term and long-term loan historically. Beginning
in 2007, we utilized other national and local banks because of our increased
demand for working capital resulting from our substantial growth of business.
For instance, we established business relationships with Linyi Commercial Bank
that provided US$1.45 million in loans for working capital to purchase raw
materials in the three months ended March 31, 2008, which was sufficient to meet
our remaining capital needs.

We expect to finance our operations and working capital needs
over the remaining months of 2008 from net income and additional financing. We
anticipate that sales will continue to increase and that net income will provide
a greater contribution to operating cash needs than in past years. We currently
plan to finance or refinance approximately US$20 million in order to support the
projected expansion of our production in 2008. Currently, we have negotiated
loan agreements with Linyi Commercial Bank and certain banks in Junan County for
a total of US$3.5 million. We have had negotiations with certain other financial
institutions in China (local and national), which have agreed in principle to
provide us short-term working capital loans throughout 2008; however no such
loan arrangements have been finalized or funded. We can provide no assurance
that we will be able to enter into these or any other financing or refinancing
on terms favorable to the Company, if at all. We also have no current credit
facilities or other lines of credit. If we are unable to complete any such
financing or refinancing efforts, our net income may not be sufficient to
satisfy our working capital and operating expansion needs in 2008 and our
operations and financial condition may be negatively impacted.

31

---



Obligations under Material Contracts

We do not have any material contractual obligations as of
March 31, 2008.

Critical Accounting Policies

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires our
management to make assumptions, estimates and judgments that affect the amounts
reported in the financial statements, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We consider our critical
accounting policies to be those that require the more significant judgments and
estimates in the preparation of financial statements, including the following:

- 







|Name of Company                   | Place of incorporation | Attributable equity interest % | Registered capital |                  
|--------------------------------- | ---------------------- | ------------------------------ | ------------------ | -----------------
|Shandong Green Foodstuff Co., Ltd | PRC                    | 80.2                           | $12,901,823        | (RMB 100,860,000)
|Luotian Green Foodstuff Co., Ltd  | PRC                    | 100                            | $1,279,181         | (RMB 10,000,000) 
|Junan Hongrun Foodstuff Co., Ltd  | PRC                    | 100                            | $2,430,445         | (RMB 19,000,000) 
|Beijing Green Foodstuff Co., Ltd  | PRC                    | 100                            | $1,279,181         | (RMB 10,000,000) 

Accounting for the Impairment of
Long-Lived Assets  The long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. It is reasonably
possible that these assets could become impaired as a result of technology or
other industry changes. Determination of recoverability of assets to be held and
used is by comparing the carrying amount of an asset to future net undiscounted
cash flows to be generated by the assets.

32

---



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 assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

During the reporting periods, there
was no impairment loss.

Revenue recognitionThe Company's
revenue recognition policies are in compliance with Staff accounting bulletin (SAB)
104. Sales revenue is recognized at the date of shipment to customers when a
formal arrangement exists, the price is fixed or determinable, the delivery is
completed, no other significant obligations of the Company exist and
collectability is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.

The Company's revenue consists of
invoiced value of goods, net of a value-added tax (VAT). No product return or
sales discount allowance is made as products delivered and accepted by customers
are normally not returnable and sales discount is normally not granted after
products are delivered.

Recent accounting pronouncements

In July 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109, which
clarifies the accounting for uncertainty in tax positions. This Interpretation
requires that the Company recognizes in its consolidated financial statements
the impact of a tax position if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 are effective for the Company on January 1, 2007, with the
cumulative effect of the change in accounting principle, if any, recorded as an
adjustment to opening retained earnings.

In September 2006, the FASB issued SFAS 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements, where fair value
is the relevant measurement attribute. The standard does not require any new
fair value measurements. SFAS 157 is effective for financial statements issued
for fiscal year beginning after November 15, 2007, and interim periods within
that fiscal year.

In September 2006, the SEC issued SAB No. 108, which provides
guidance on the process of quantifying financial statement misstatements. In SAB
No. 108, the SEC staff establishes an approach that requires quantification of
financial statement errors, under both the iron-curtain and the roll-over
methods, based on the effects of the error on each of the Companys financial
statements and the related financial statement disclosures. SAB No.108 is
generally effective for annual financial statements in the first fiscal year
ending after November 15, 2006. The transition provisions of SAB No. 108 permits
existing public companies to record the cumulative effect in the first year
ending after November 15, 2006 by recording correcting adjustments to the
carrying values of assets and liabilities as of the beginning of that year with
the offsetting adjustment recorded to the opening balance of retained earnings.

33

---



In February 2007, the FASB issued SFAS No. 159, "The Fair
Value Option for Financial Assets and Financial LiabilitiesIncluding an
Amendment of SFAS 115" (SFAS No. 159), which allows for the option to measure
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
reported in earnings. The objective of SFAS 159 is to provide opportunities to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply hedge accounting provisions.
SFAS 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact of SFAS No.
159 on our consolidated financial statements.

The Company does not anticipate that the adoption of the
above standards will have a material impact on these consolidated financial
statements.

Seasonality

Our operating results and operating cash flows historically
have been subject to seasonal variations. Our raw materials are mostly fresh
agricultural products. Therefore, we are subject to production seasonality by
product, though we are able to maintain overall year-round production.
Specifically, the main processing season for chestnut products is from the
latter half of August to the next January. During the busy season, our chestnut
production lines are running with full capacity. Other than this period, we
still maintain a small amount of chestnut production by using frozen chestnuts.
However, this pattern may change, as a result of new market opportunities or new
product introductions.

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

Interest Rate Risk

We are exposed to interest rate risk primarily with respect
to our short-term bank loans. Although the interest rates are fixed for the
terms of the loans, the terms are typically twelve months and interest rates are
subject to change upon renewal. Since December 21, 2007, China Peoples Bank has
increased the interest rate of RMB bank loans with a term of 6 months or less by
0.99%, and loans with a term of 6 to 12 months by 1.35%. The new interest rates
are 6.57% and 7.47% for RMB bank loans with a term 6 months or less and loans
with a term of 6-12 months, respectively. A hypothetical 1.0% increase in the
annual interest rates for all of our credit facilities at March 31, 2008 would
decrease net income before provision for income taxes by approximately $0.3
million for the period ended March 31, 2008. Management monitors the banks
interest rates in conjunction with our cash requirements to determine the
appropriate level of debt balances relative to other sources of funds. We have
not entered into any hedging transactions in an effort to reduce our exposure to
interest rate risk.

34

---



Foreign Exchange Risk

While our reporting currency is the US Dollar, all of our
consolidated revenues and consolidated costs and expenses are denominated in
Renminbi. All of our assets are denominated in RMB except for cash which is in
RMB and Hong Kong Dollars. As a result, we are exposed to foreign exchange risk
as our revenues and results of operations may be affected by fluctuations in the
exchange rate between US Dollars and RMB. If the RMB depreciates against the US
Dollar, the value of our RMB revenues, earnings and assets as expressed in our
US Dollar financial statements will decline. We have not entered into any
hedging transactions in an effort to reduce our exposure to foreign exchange
risk.

Inflation

Inflationary factors such as increases in the cost of our
product and overhead costs may adversely affect our operating results. Although
we do not believe that inflation has had a material impact on our financial
position or results of operations to date, a high rate of inflation in the
future may have an adverse effect on our ability to maintain current levels of
gross margin and selling, general and administrative expenses as a percentage of
net revenues, if the selling prices of our products do not increase with these
increased costs.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act) that are
designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms, and
that such information is accumulated and communicated to our management,
including to our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 and Rule 15d-15 promulgated under
the Exchange Act, our management, including our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of March 31, 2008. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that as of March 31, 2008, our disclosure controls and procedures were effective
to satisfy the objectives for which they are intended.

Changes in Internal Control Over Financial Reporting.

No change occurred in our internal control over financial
reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the
Exchange Act) during the fiscal quarter ended March 31, 2008 that has materially
affected or is reasonably likely to materially affect our internal control over
financial reporting.

35

---



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we have disputes that arise in the
ordinary course of business. Currently, there are no material legal proceedings
to which we are a party, or to which any of our property is subject.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors
disclosed in Item 1A Risk Factors of Part 1included in our annual report on Form
10-K for the year ended December 31, 2007.

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

There were no unregistered sales of equity securities during
the quarter ended March 31, 2008.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders
during the quarter ended March 31, 2008.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

EXHIBITS.

|31.1 | Certification of
    Principal Executive Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                         
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 | Certification of
    Principal Financial Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                         
|32.1 | Certification of
    Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2 | Certification of
    Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

36

---



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

Date: May 16, 2008

AMERICAN LORAIN
      CORPORATIONBy: /s/ Si ChenSi ChenChief Executive Officer




37

---



EXHIBIT INDEX

|Exhibit | Description                                                                                                                                                   
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                               
|31.1    | Certification of
    Principal Executive Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                         
|31.2    | Certification of
    Principal Financial Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                         
|32.1    | Certification of
    Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2    | Certification of
    Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





38

---