**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10 Q**




(Mark
      One)




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





For
      the
      quarterly period ended: June 30, 2007





o
      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)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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
x No o





Indicate
      by check mark whether the registrant is a larger accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of "accelerated
      filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
      one)




Large accelerated filer o
              Accelerated filer o
              Non-accelerated filer x





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


Yes
o No x





The
      numbers of shares outstanding of each of the issuer’s classes of common equity,
      as of August 20, 2007, are as follows:





**Class
                of Securities**
            **Shares
                Outstanding**Common
                Stock, $0.001 par value
            24,923,178











Table
      of
      Contents





Page**Part
                I - Financial Information**Item
                1
            Financial
                Statements
            3Item
                2
            Management's
                Discussion and Analysis or Plan of Operation
            18Item
                3
            Controls
                and Procedures**Part
                II - Other Information**Item
                1
            Legal
                Proceedings
            31Item
                2
            Recent
                Sales of Unregistered Securities and Use of Proceeds
            47Item
                3
            Defaults
                Upon Senior Securities
            48Item
                4
            Submission
                of Matters to a Vote of Security Holders
            48Item
                5
            Other
                Information
            48Item
                6
            Exhibits
            48**Signatures**
            49






2





**PART
      I** **FINANCIAL
      INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS.**





**AMERICAL
                LORAIN CORPORATION****CONSOLIDATED
                BALANCE SHEETS****AS
                OF JUNE 30, 2007 AND DECEMBER 31, 2006****(Stated
                in U.S. Dollars)**





*Notes*
            
            *2007*
            
            *2006***ASSETS**Current
                assetsCash
                and cash equivalents
            
            
            
            
            $
            2,526,427
            
            $
            2,316,425Restricted
                cash
            
            
            3
            
            
            6,536,540
            
            
            2,549,321Short
                term Investment
            
            
            
            
            
            6,951
            
            
            26,618Trade
                accounts receivable
            
            
            4
            
            
            8,903,779
            
            
            11,805,229Prepayments
                for raw materials
            
            
            
            
            
            3,353,642
            
            
            2,406,161Income
                tax prepayment
            
            
            
            
            
            -
            
            
            38,375Other
                receivables
            
            
            
            
            
            9,637,204
            
            
            4,466,169Inventories
            
            
            5
            
            
            13,773,027
            
            
            12,294,354Total
                current assets
            
            
            
            
            $
            44,737,570
            
            $
            35,902,652Other
                AssetsProperty,
                plant and equipment, net
            
            
            6
            
            
            13,100,394
            
            
            8,883,464Leasehold
                land, net
            
            
            7
            
            
            2,852,723
            
            
            2,777,476Total
                Non Current Assets
            
            
            
            
            $
            15,953,117
            
            $
            11,660,940**TOTAL
                ASSETS**
            
            
            
            
            $
            60,690,687
            
            $
            47,563,592**LIABILITIES
                AND****STOCKHOLDERS’
                EQUITY**Current
                liabilitiesShort
                term bank loans
            
            
            
            
            $
            16,062,061
            
            $
            21,858,467Current
                maturities of long term debts
            
            
            
            
            
            -
            
            
            5,117Accounts
                and notes payable
            
            
            
            
            
            3,615,618
            
            
            5,262,549Customers’
                deposits
            
            
            
            
            
            727,216
            
            
            843,089Accrued
                expenses and other
            
            
            
            
            
            5,938,551
            
            
            10,228,267Income
                tax payable
            
            
            
            
            
            307,376
            
            
            402,217Total
                current liabilities
            
            
            
            
            $
            26,650,822
            
            $
            38,599,706Long
                term bank loans
            
            
            
            
            
            1,416,921
            
            
            1,384,741**TOTAL
                LIABILITIES**
            
            
            
            
            $
            28,067,743
            
            $
            39,984,447





See
      notes
      to consolidated financial statements and accountant's report




3





**AMERICAL
                LORAIN CORPORATION****CONSOLIDATED
                BALANCE SHEETS (Continued)****AS
                OF JUNE 30, 2007 AND DECEMBER 31, 2006****(Stated
                in US Dollars)**





*Notes*
            
            *2007*
            
            *2006*Minority
                interests
            
            
            
            
            $
            3,629,879
            
            $
            3,474,042**STOCKHOLDERS’
                EQUITY**Series
                A voting convertible preferred stock$0.001
                par value, 100,000 sharesauthorized;
                100,000 shares issued butimmediately
                converted to common stock
            
            
            
            
            $
            -
            
            $
            -Series
                B voting convertible preferred stock$0.001
                par value, 1,000,000 sharesauthorized;
                996,718.78 shares issued butimmediately
                converted to common stock
            
            
            
            
            
            -
            
            
            -Common
                stock, $0.001 par value,200,000,000
                shares authorized;35,111,908
                and 28,121,507 shares issuedand
                outstanding at June 30, 2007 andDecember
                31, 2006
            
            
            8
            
            
            35,112
            
            
            28,122Additional
                Paid-in Capital
            
            
            8
            
            
            20,349,190
            
            
            -Statutory
                reserves
            
            
            
            
            
            2,495,587
            
            
            904,594Retained
                earnings
            
            
            
            
            
            4,589,115
            
            
            3,141,804Accumulated
                other comprehensive income
            
            
            
            
            
            1,524,061
            
            
            30,583Total
                Stockholders’ Equity
            
            
            
            
            $
            28,993,065
            
            $
            4,105,103**TOTAL
                LIABILITIES AND****STOCKHOLDERS’
                EQUITY**
            
            
            
            
            $
            60,690,687
            
            $
            47,563,592





See
      notes
      to consolidated financial statements and accountant's report




4





**AMERICAL
                LORAIN CORPORATION****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THE PERIODS ENDED JUNE 30, 2007 AND 2006****(Stated
                in US Dollars)**





Six
                months ended June 30,
            
            Three
                months ended June 30,**Note**
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**RevenueNet
                revenues
            
            
            
            
            $
            25,242,021
            
            $
            15,090,325
            
            $
            13,343,209
            
            $
            9,502,539Cost
                of revenues
            
            
            
            
            
            (19,341,479
            )
            
            (11,725,331
            )
            
            (10,388,680
            )
            
            (7,438,589
            )Gross
                profit
            
            
            
            
            
            5,900,542
            
            
            3,364,994
            
            
            2,954,529
            
            
            2,063,950Operating
                expensesSelling
                and marketing expenses
            
            
            
            
            
            (422,750
            )
            
            (623,870
            )
            
            (296,917
            )
            
            (327,225
            )General
                and administrative expenses
            
            
            
            
            
            (820,140
            )
            
            (673,868
            )
            
            (460,141
            )
            
            (311,905
            )Income
                from continuing operations
            
            
            
            
            
            4,657,652
            
            
            2,067,256
            
            
            2,197,471
            
            
            1,424,820Finance
                costs, net
            
            
            
            
            
            (1,303,281
            )
            
            (744,074
            )
            
            (764,201
            )
            
            (379,687
            )Government
                grant
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,910
            )Sundry
            
            
            
            
            
            33,824
            
            
            15,704
            
            
            26,103
            
            
            15,704Other
                income
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (58,751
            )Other
                expenses
            
            
            9
            
            
            (1,333,429
            )
            
            (34,148
            )
            
            (1,329,203
            )
            
            (3,901
            )Income
                before taxation
            
            
            
            
            
            2,054,766
            
            
            1,304,738
            
            
            130,170
            
            
            995,275Income
                tax
            
            
            10
            
            
            (615,577
            )
            
            (270,129
            )
            
            (285,597
            )
            
            (190,878
            )Net
                income before minority interests
            
            
            
            
            
            1,439,189
            
            
            1,034,609
            
            
            (155,427
            )
            
            804,397Minority
                interests
            
            
            
            
            
            (155,837
            )
            
            4,283
            
            
            (54,442
            )
            
            484,652**Net
                income**
            
            
            ****
            ****
            **$**
            **1,283,352**
            ****
            **$**
            **1,038,892**
            ****
            **$**
            **(209,869**
            **)**
            **$**
            **1,289,049**Net
                income per share, basic anddiluted
            
            
            
            
            $
            0.0366
            
            $
            0.0295
            
            $
            (0.00746
            )
            $
            0.0458Weighted
                average sharesoutstanding
                of common stock
            
            
            
            
            
            35,111,908
            
            
            35,111,908
            
            
            28,121,507
            
            
            28,121,507




See
      notes
      to consolidated financial statements and accountant's report




5





**AMERICAL
                LORAIN CORPORATION****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                THE SIX-MONTHS AND THREE-MONTHS ENDED JUNE 30, 2007 AND
                2006****(Stated
                in US Dollars)**





Six
                months ended June 30,
            
            Three
                months ended June 30,**2007**
            
            **2006**
            
            **2007**
            
            **2006****Cash
                Flows from Operating Activities**Net
                income
            
            $
            1,283,352
            
            $
            1,038,892
            
            $
            (209,869
            )
            $
            1,289,049Depreciation
            
            
            345,003
            
            
            378,516
            
            
            185,240
            
            
            233,844Amortization
            
            
            24,019
            
            
            24,019
            
            
            5,981
            
            
            13,593Minority
                interest
            
            
            155,837
            
            
            (4,283
            )
            
            54,442
            
            
            (484,652
            )Increase
                in accounts and other receivables
            
            
            (3,178,691
            )
            
            (4,681,372
            )
            
            (6,173,644
            )
            
            (9,068,823
            )(Increase)/decrease
                in inventories
            
            
            (1,478,673
            )
            
            (8,189,298
            )
            
            (2,565,667
            )
            
            (4,785,675
            )Increase/(decrease)
                in accounts and other payables
            
            
            (6,147,360
            )
            
            16,012,172
            
            
            (7,514,109
            )
            
            13,034,878Net
                cash (used in)/provided by operating activities
            
            **$**
            **(8,996,513**
            **)**
            **$**
            **4,578,646**
            ****
            **$**
            **(16,217,626**
            **)**
            **$**
            **232,214****Cash
                Flows from Investing Activities**Purchase
                ofLandscaping,
                plant and tree
            
            
            (1,031,299
            )
            
            (1,000,000
            )
            
            (1,031,299
            )
            
            (1,000,000
            )Purchase
                of plant and equipment
            
            
            -
            
            
            (7,506,599
            )
            
            (887,995
            )
            
            (6,898,494
            )Purchase
                of leasehold land
            
            
            -
            
            
            (1,530,817
            )
            
            
            
            
            (1,530,817
            )(Increase)/Decrease
                in restricted cash
            
            
            (3,987,219
            )
            
            2,838,067
            
            
            (6,209,092
            )
            
            246,183Payment
                of cost of lease payment
            
            
            -
            
            
            -
            
            
            1,081,811
            
            
            105,259Investment
                in short term securities
            
            
            19,667
            
            
            16,474
            
            
            19,930
            
            
            20,908Construction
                in Progress
            
            
            (777,177
            )
            
            (500,000
            )
            
            (777,177
            )
            
            (500,000
            )Cash
                (Used)/Sourced in Investing Activities
            
            **$**
            **(5,776,028**
            **)**
            
            **(7,682,875**
            **)**
            **$**
            **(7,803,822**
            **)**
            **$**
            **(9,556,961**
            **)****Cash
                Flows from Financing Activities**Bank
                borrowings, net of payment
            
            
            (5,769,343
            )
            
            (2,675,029
            )
            
            (2,618,282
            )
            
            (51,170
            )Issue
                of common stock
            
            
            103,679
            
            
            -
            
            
            103,679
            
            
            -Additional
                Paid-in capital
            
            
            20,260,623
            
            
            -
            
            
            20,260,623
            
            
            -Cash
                (Used)/Sourced in Financing Activities
            
            **$**
            **14,594,959**
            ****
            **$**
            **(2,675,029**
            **)**
            **$**
            **17,746,020**
            ****
            **$**
            **(51,170**
            **)****Net
                Increase in Cash & Cash Equivalents for the Period**
            
            $
            (177,582
            )
            $
            (5,779,258
            )
            $
            (6,275,428
            )
            $
            (9,375,917
            )Effect
                of foreign currency translation on Cash & Cash
                equivalents
            
            
            387,585
            
            
            (220,895
            )
            
            351,291
            
            
            (750,574
            )**Cash
                & Cash Equivalents at Beginning of Period**
            
            
            2,316,425
            
            
            7,429,038
            
            
            8,450,565
            
            
            11,555,376**Cash
                & Cash Equivalents at End of Period**
            
            $
            2,526,428
            
            
            1,428,885
            
            $
            2,526,428
            
            $
            1,428,885




See
      notes
      to consolidated financial statements and accountant's report





6




**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)*
            *Organization
                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 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 other 19.8% is owned by Shandong Economic Development Investment
      Co.
      Ltd., a State-owned entity 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
      Lorain by issuance of 697,663 Series B voting convertible preferred shares
      to
      the shareholders of Lorain in exchange of 5,099,503 Lorain shares. Concurrently
      on May 3, 2007, the Company issued 299,058.78 Series B voting convertible
      preferred shares (which were later converted to 6,990,401 common shares) at
      a
      selling price of $2.87 per share to certain private investors.





The
      share
      exchange transaction and the private financing transaction are collectively
      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, ALC. 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 12 Capitalization.




7





*(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 interest of minority investors are recorded
      as minority interests.





The
      Company owned the four subsidiaries since its reverse-merger on May 3, 2007.
      As
      of June 30, 2007, the detailed identities of the consolidating subsidiaries
      are
      as follows:





***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
            )





*(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.




8





*(d)*
            *Economic
                and political risks*





The
      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)*
            *Cash
                and cash equivalents*





The
      Company considers all highly liquid investments purchased with original
      maturities of three months or less to be cash equivalents. The Company maintains
      bank accounts only in the PRC. The Company does not maintain any bank accounts
      in the United States of America.





*(f)*
            *Trade
                receivables*





Trade
      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.





*(g)*
            *Inventories*





Inventories
      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.





*(h)*
            *Property,
                plant and equipment*





Plant
      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






9






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.





*(i)*
            *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.





*(j)*
            *Leasehold
                Land*





Leasehold
      Land represents 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.




*(k)*
            *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 periods, there was no impairment loss.





*(l)*
            *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 an 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.




10




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.





*(m)*
            *Customer
                deposits*





Customer
      deposits were received from customers in connection with orders of products
      to
      be delivered in future periods.





*(n)*
            *Statutory
                reserves*





Statutory
      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.





*(o)*
            *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.





*(p)*
            *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.





*(q)*
            *Advertising*





All
      advertising costs are expensed as incurred.





*(r)*
            *Shipping
                and handling*





All
      shipping and handling are expensed as incurred.




11





*(s)*
            *Research
                and development*





All
      research and development costs are expensed as incurred.





*(t)*
            *Retirement
                benefits*





Retirement
      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.





*(u)*
            *Income
                taxes*





The
      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.





*(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.





*(w)*
            *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.




*June
                30, 2007*
            
            *December
                31, 2006*
            
            *June
                30, 2006*Year
                end RMB : US$ exchange rate
            
            
            7.6248
            
            
            7.8175
            
            
            8.0065Average
                yearly RMB : US$ exchange rate
            
            
            7.72999
            
            
            7.98189
            
            
            8.03924




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.




12




*(x)*
            *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.





*(y)*
            *Segment
                reporting*





The
      Company uses the “management approach” in determining reportable operating
      segments. The management approach considers the internal organization and
      reporting used by the Company’s chief operating decision maker for making
      operating decisions and assessing performance as the source for determining
      the
      Company’s reportable segments.





*(z)*
            *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
      years beginning after November 15, 2007, and interim periods within those fiscal
      years.





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.




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.




13




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




**3.**  **RESTRICTED
      CASH**





Restricted
      Cash represents cash placed with banks to secure banking facilities, which
      are
      comprised of loans and notes payable in addition to other
      collateral.





**4.**  **TRADE
      ACCOUNTS RECEIVABLE**





*2007*
            
            *2006*Trade
                accounts receivable
            
            $
            9,130,660
            
            $
            12,032,110Less:
                Allowance for doubtful accounts
            
            
            (221,881
            )
            
            (226,881
            )$
            8,903,779
            
            $
            11,805,229





The
      Group
      offer 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.





An
      analysis of the allowance for doubtful accounts for the period ended June 30,
      2007 and December 31, 2006 is as follows:





*2007*
            
            *2006*Balance
                at beginning of year
            
            $
            226,881
            
            $
            -Arising
                through acquisition
            
            
            -
            
            
            67,090Addition
                of bad debt expense, net
            
            
            -
            
            
            159,791Balance
                at end of year
            
            $
            226,881
            
            $
            226,881





**5.**  **INVENTORIES**





Inventories
      at June 30, 2007 and December 31, 2006 consists of the following:





*2007*
            
            *2006*Raw
                materials
            
            $
            6,560,319
            
            $
            7,785,927Finished
                goods
            
            
            7,212,708
            
            
            4,508,427$
            13,773,027
            
            $
            12,294,354




14




**6.**  **PROPERTY,
      PLANT, AND EQUIPMENT**





Property,
      plant, and equipment at June 30, 2007 consist of the following:





*2007*
            
            *2006*At
                costBuildings
            
            $
            8,395,048
            
            $
            5,706,515Machinery
                and equipment
            
            
            4,869,942
            
            
            3,658,663Office
                equipment
            
            
            227,060
            
            
            163,100Motor
                vehicles
            
            
            329,043
            
            
            245,139$
            13,821,093
            
            $
            10,236,071Less:
                accumulated depreciation
            
            
            (2,529,175
            )
            
            (2,184,172
            )Landscaping,
                plant and tree
            
            
            1,031,299Construction
                in progress
            
            
            777,177
            
            
            831,565$
            13,100,394
            
            $
            8,883,464





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
      three year.





Landscaping,
      plant and tree is chestnut trees investment 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.**  **LEASEHOLD
      LAND, NET**





Leasehold
      Land at June 30, 2007 and December 31, 2006 consists of the
      following:





*2007*
            
            *2006*Leasehold
                Land, at cost
            
            $
            2,985,853
            
            $
            2,886,587Accumulated
                amortization
            
            
            (133,130
            )
            
            (109,111
            )$
            2,852,723
            
            $
            2,777,476




Leasehold
      Land represents the prepaid land use right. The PRC government owns the land
      on
      which the Company’s corporate campus is being constructed.





Amortization
      expense, which is calculated by straight-line, for the above leasehold land
      was
      $24,019 and $23,788 for the period ended June 30, 2007 and December 31, 2006.




15





**8.**  **CAPITALIZATION**





As
      a
      result of the reverse-merger on May 3, 2007 involving an exchange of shares
      and
      issuance of shares to private investors and other parties involved in the deal,
      total capitalization of the Company by common stock and Series A and B of
      preferred stock with related additional paid-in capital at June 30, 2007 and
      December 31, 2006 are depicted in the following table:





Name
                of Shareholder
            
            Number
                of Shares
            
            Stock
                Capital
            
            Additional
                Paid-in capitalShareholders
                of International Lorain Holding Inc. (697,663 Series B preferred
                shares
                converted to common shares)
            
            $
            16,307,872
            
            $
            16,308
            
            $
            (16,148
            )Halter
                Financial Investments LP and Other (100,000 Series A preferred shares
                converted to common shares)
            
            
            1,304,992
            
            
            1,305
            
            
            (1,305
            )Original
                Shareholders of Millennium Quest before reverse-merger
            
            
            10,508,643
            
            
            10,509
            
            
            (10,509
            )Private
                Investors (299,055.78 Series B preferred shares converted to common
                shares)
            
            
            6,990,401
            
            
            6,990
            
            
            19,318,943Less:
                Cost of issue
            
            
            -
            
            
            -
            
            
            (2,043,295
            )Original
                Additional Paid-in capital from the 4 PRC subsidiaries
            
            
            -
            
            
            -
            
            
            3,101,504$
            35,111,908
            
            $
            35,112
            
            $
            20,349,190





**9.**  **OTHER
      EXPENSES**





Included
      in this heading of expense was casualty loss on the Company’s Beijing production
      facility, which had a fire due to electricity short-circuit on May 26, 2007.
      The
      cost to rebuild the facility and replace equipment incurred during the current
      quarter amounted to $ 1,243,000 (RMB 9,500,000). Production was restored to
      normal during early August 2007.





**10.**  **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 is 33%. 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,
      2006
      for the following reasons:




16





2007
            
            2006Income
                before tax
            
            $
            2,054,766
            
            $
            5,411,264Tax
                at the income tax rate
            
            
            678,072
            
            
            1,785,717Effect
                of tax exemption granted
            
            
            (62,495
            )
            
            (842,586
            )Income
                tax
            
            $
            615,577
            
            $
            943,131




As
      of
      June 30, 2007, there existed no deferred tax assets or liabilities for the
      Group
      pursuant to the PRC tax law.





17


**PART
      I. 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-QSB 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 reverse acquisition transaction with Lorain
      Holding, 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.





We
      develop, manufacture and sell convenience foods. Convenience 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), chestnut products, and frozen, canned
      and bulk foods, in hundreds of varieties. We operate through our indirect
      Chinese subsidiaries. Our products are sold in 19 provinces and administrative
      regions in China and 23 foreign countries.





***Background
      and History of Lorain Holding and its Operating Subsidiaries and
      Affiliates***




18





Lorain
      Holding was incorporated in the Cayman Islands in August 2006. 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). We sometimes refer to these four Chinese
      operating subsidiaries as the Lorain Group Companies.





***Recent
      Developments***





On
      July
      17 th ,
      we have
      changed our company name into American Lorain Corporation and completed reverse
      split of stock.





In
      the
      second quarter, Shandong Lorain worked on constructing an egg-processing
      workshop, the estimated cost of which is 14 million RMB (U.S. $1.81 million).
      Ten percent of this project has been completed and the final completion is
      anticipated the end of this year. During the same period, Shandong Lorain worked
      on constructing a sewage plant, for which 1.45 million RMB (U.S. $0.18 million)
      has been spent, and seventy percent of the project has been completed. The
      reconstruction of Beijing Lorain, which factory was damaged during the fire
      mentioned below, has been finished, and the factory will resume operation at
      the
      end of this August.





***Uncertainties
      that Affect our Financial Condition***




May
      26,
      2007, as the result of a short circuit there was a fire at Beijing Green
      Foodstuff Co., Ltd. (“Beijing Lorain”).The fire consumed production space and
      equipment that was worth approximately 10.16 million RMB (U.S. $1.3 million)
      on
      the Company’s books. The local government of Miyun County has subsidized 1.2
      million RMB (U.S. $0.16 million) of the cost of rebuilding the facility on
      July
      18, 2007. Additionally, the Company estimates an approximate U.S. $1 million
      loss of revenue.





The
      cost
      of one of our raw materials, asparagus, increased dramatically during the second
      quarter of 2007. Accordingly, the selling price of our asparagus products
      increased significantly, which led to decreased sales volume of such products
      in
      the foreign market.





**Results
      of Operations**





***Three
      months Ended June 30, 2007 Compared to Three months Ended June 30,
      2006***





The
      following table summarizes the results of our operations during the three-month
      period ended June 30, 2007 and ended June 30, 2006, and provides information
      regarding the dollar and percentage increase or (decrease) from the three-month
      period ended June 30, 2007 to the three-month period ended June 30, 2006.





19




**AMERICAL
                LORAIN CORPORATION****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THE PERIODS ENDED JUNE 30, 2007 AND 2006****(Stated
                in US Dollars)**





Three
                months ended June 30,
            
            Dollar
                ($)
            
            Percentage(%)**Note**
            
            **2007**
            
            **2006**
            
            **Increase**
              **(Decrease)**
            
            **Increase**
              **(Decrease)**RevenueNet
                revenues
            
            
            
            
            $
            13,343,209
            
            $
            9,502,539
            
            
            3,840,670
            
            
            40.42
            %Cost
                of revenues
            
            
            
            
            
            (10,388,680
            )
            
            (7,438,589
            )
            
            2,950,091
            
            
            39.66
            %Gross
                profit
            
            
            
            
            
            2,954,529
            
            
            2,063,950
            
            
            890,579
            
            
            43.15
            %Operating
                expensesSelling
                and marketing expenses
            
            
            
            
            
            (296,917
            )
            
            (327,225
            )
            
            (30,308
            )
            
            (9.26
            %)General
                and administrative expenses
            
            
            
            
            
            (460,141
            )
            
            (311,905
            )
            
            148,236
            
            
            47.52
            %Income
                from continuing operations
            
            
            
            
            
            2,197,471
            
            
            1,424,820
            
            
            772,651
            
            
            54.23
            %Finance
                costs, net
            
            
            
            
            
            (764,201
            )
            
            (379,687
            )
            
            384,514
            
            
            101.27
            %Government
                grant
            
            
            
            
            
            -
            
            
            (2,910
            )
            
            (2,910
            )
            
            (100
            %)Sundry
            
            
            
            
            
            26,103
            
            
            15,704
            
            
            10,399
            
            
            66.22
            %Other
                income
            
            
            
            
            
            -
            
            
            (58,751
            )
            
            (58,751
            )
            
            (100
            %)Other
                expenses
            
            
            9
            
            
            (1,329,203
            )
            
            (3,901
            )
            
            1,325,302
            
            
            33973.39
            %Income
                before taxation
            
            
            
            
            
            130,170
            
            
            995,275
            
            
            (865,105
            )
            
            (86.92
            %)Income
                tax
            
            
            10
            
            
            (285,597
            )
            
            (190,878
            )
            
            94,719
            
            
            49.62
            %Net
                income before minority interests
            
            
            
            
            
            (155,427
            )
            
            804,397
            
            
            (959,824
            )
            
            (119.32
            %)Minority
                interests
            
            
            
            
            
            (54,442
            )
            
            484,652
            
            
            (539,094
            )
            
            (111.23
            %)**Net
                income**
            
            
            
            
            **$**
            **(209,869**
            **)**
            **$**
            **1,289,049**
            ****
            **$**
            **(1,498,918**
            **)**
            
            **(116.28**
            **%)**




*Net
      Revenues* . Our
      net
      revenue for the three months ended June 30, 2007 amounted to $13.34 million,
      which is approximately $3.84 million or 40.42% more than that of the same period
      ended on June 30, 2006, where we had revenue of $9.5 million.  This
      increase was attributable to an increase of 94.48% in domestic sales as compared
      to the same period ended June 30, 2006, in spite of the fact that our sales
      in
      foreign market decreased by 42.47% due primarily to a general lack of confidence
      with Chinese food which occurred in the foreign markets in the second quarter
      and also due to increased selling price of our asparagus
      products.




20




*Cost
      of Revenues.* Our
      cost
      of goods sold, which consists of raw materials, direct labor and manufacturing
      overhead expenses, was $10.39 million for the three month period ended June
      30,
      2007, a increase of $2.95 million or 39.66%, as compared to $7.44 million for
      the three month period ended June 30, 2006. This
      increase was mainly attributable to increased volume of products
      sold.





*Gross
      Profit* .
      Our
      gross profit increased $0.89 million , or 43.15% to $2.95 million for the three
      months ended June 30, 2007 from $2.06 million for the same period in 2006.
      This
      increase was mainly attributable to the increase in sales.





*Selling
      and Marketing Expenses* .
      Selling
      and marketing expenses decreased $0.03 million, or 9.26% to $0.30 million for
      the three months ended June 30, 2007 from $0.33 million for the same period
      in
      2006. This decrease mainly resulted from decreased
      transportation cost for export sales as the sale volume in foreign market
      decreased.





*General
      and Administrative Expenses.* General
      and administrative expenses increased $0.15 million, or 47.52% to $0.46 million
      for the three months ended June 30, 2007 from $0.31 million for the same period
      of 2006 **.** The
      increase of general and administrative expenses was primarily attributable
      to
      (1) increased compensation for managerial personnel and (2) increased traveling
      and lodging expenses associated with increased field sales efforts. ****




*Income
      Before Income Taxes and Minority Interest.* Income
      before income taxes and minority interest decreased $0.87 million or 86.92%
      to
      $0.13 million for the three months ended June 30, 2007 from $1.00 million for
      the same period of 2006. The decrease was primarily attributed to the
      substantial loss incurred by Beijing Lorain due to the fire.




*Income
      Taxes* .
      Income
      taxes increased $0.09 million or 49.62% to $0.28 million for the three months
      ended June 30, 2007 from $0.19 million RMB for the same period of 2006. The
      increase of tax paid was primarily a result of higher income achieved by all
      the
      subsidiaries except for Beijing Lorain.





**** On
      March
      16, 2007, the National People’s Congress of the PRC determined to adopt a new
      corporate income tax law in its fifth plenary session. The new corporate income
      tax law unifies the application, scope, tax rate, tax deduction and preferential
      policy for both domestic and foreign-invested enterprises.  The new
      corporate income tax law will be effective on January 1, 2008.  According
      to the new corporate income tax law, the applicable income tax rate for our
      operating subsidiaries may be subject to change.  As the implementation
      details have not yet been announced, we cannot be sure of the potential impact
      of such new corporate income tax law on our financial position and operating
      results.




21




*Net
      Income.* Net
      income decreased $1.50 million , or 116.28% to $0.21 million for the three
      months ended June 30, 2007 from$ 1.29 million for the same period of
      2006.




***Six
      months Ended June 30, 2007 Compared to Six months Ended June 30,
      2006***





The
      following table summarizes the results of our operations during the six-month
      period ended June 30, 2007 and ended June 30, 2006, and provides information
      regarding the dollar and percentage increase or (decrease) from the six-month
      period ended June 30, 2007 to the six-month period ended June 30, 2006.





(All
      amounts, other than percentages, are in thousands of U.S. dollars)





Six
                months ended June 30,
            
            Dollar
                ($)
            
            Percentage
                (%)**2007**
            
            **2006**
            
            **Increase**
              **(Decrease)**
            
            **Increase**
              **(Decrease)**RevenueNet
                revenues
            
            $
            25,242,021
            
            $
            15,090,325
            
            $
            10,151,696
            
            
            67.27
            %Cost
                of revenues
            
            
            (19,341,479
            )
            
            (11,725,331
            )
            
            7,616,148
            
            
            64.95
            %Gross
                profit
            
            
            5,900,542
            
            
            3,364,994
            
            
            2,535,548
            
            
            75.35
            %Operating
                expensesSelling
                and marketing expenses
            
            
            (422,750
            )
            
            (623,870
            )
            
            (201,120
            )
            
            (32.23
            %)General
                and administrative expenses
            
            
            (820,140
            )
            
            (673,868
            )
            
            146,272
            
            
            21.7
            %Income
                from continuing operations
            
            
            4,657,652
            
            
            2,067,256
            
            
            2,590,396
            
            
            125.30
            %Finance
                costs, net
            
            
            (1,303,281
            )
            
            (744,074
            )
            
            559,207
            
            
            75.15
            %Government
                grant
            
            
            -
            
            
            -Sundry
            
            
            33,824
            
            
            15,704
            
            
            18,120
            
            
            115.38
            %Other
                income
            
            
            -
            
            
            -Other
                expenses
            
            
            (1,333,429
            )
            
            (34,148
            )
            
            1,299,281
            
            
            3804.85
            %Income
                before taxation
            
            
            2,054,766
            
            
            1,304,738
            
            
            750,028
            
            
            57.48
            %Income
                tax
            
            
            (615,577
            )
            
            (270,129
            )
            
            345,448
            
            
            127.88
            %Net
                income before minority interests
            
            
            1,439,189
            
            
            1,034,609
            
            
            404,580
            
            
            39.1
            %Minority
                interests
            
            
            (155,837
            )
            
            4,283
            
            
            160,120
            
            
            3738.5
            %**Net
                income**
            
            **$**
            **1,283,352**
            ****
            **$**
            **1,038,892**
            ****
            **$**
            **244,460**
            ****
            ****
            **23.53**
            **%**






22




*Net
      Revenues* . Our
      net
      revenue for the six months ended June 30, 2007 amounted to $25.24 million,
      which
      is approximately $10.15 million or 67.27% more than that of the same period
      ended on June 30, 2006, where we had revenue of $15.09 million.  The
      increased revenues were attributable to the expansion of our customer base
      and
      our strengthened marketing activities.




*Cost
      of Revenues.* Our
      cost
      of goods sold, which consists of raw materials, direct labor and manufacturing
      overhead expenses, was $19.34 million for the six month period ended June 30,
      2007, a increase of $7.62 million or 64.95%, as compared to $11.72 million
      for
      the six month period ended June 30, 2006. T he
      cost
      of goods sold increased because the sales in the first six months of 2007
      increased as compared to the same period ended June 30, 2006.




*Gross
      Profit* .
      Our
      gross profit increased $2.54 million, or 75.35% to $5.9 million for the six
      months ended June 30, 2007 from $3.36 million for the same period in 2006.
      This
      increase was attributable to the increased sales of chestnuts products as a
      percentage of total sales, since chestnuts have higher gross profit margin.





*Selling
      and Marketing Expenses* .
      Selling
      and marketing expenses decreased $0.20 million, or 32.23% to $0.42 million
      for
      the six months ended June 30, 2007 from $0.62 million for the same period in
      2006. This
      decrease mainly resulted from decreased
      transportation cost for export sales as foreign sales decreased as a percentage
      of total sales.





*General
      and Administrative Expenses.* General
      and administrative expenses increased $0.15 million, or 21.70% to $0.82 million
      for the six months ended June 30, 2007 from $0.67 million for the same period
      of
      2006. The increase of general and administrative expenses was primarily
      attributable to increased
      travel and lodging expenses associated with increased sales promotion
      activities. ****





*Income
      Before Income Taxes and Minority Interest.* Income
      before income taxes and minority interest increased $0.75 million or 57.48%
      to
      $2.06 million for the six months ended June 30, 2007 from $1.31 million for
      the
      same period of 2006 **.** The
      increase was primarily a result of the higher revenue during the six month
      period ended on June 30, 2007 as compared to 2006. ****




23





*Income
      Taxes* .
      Income
      taxes increased $0.35 million or 127.88% to $0.62 million for the six months
      ended June 30, 2007 from $0.27 million for the same period of 2006. The increase
      of tax paid was primarily a result of the increase of income in 2007, as
      compared to the year of 2006.





On
      March
      16, 2007, the National People’s Congress of the PRC determined to adopt a new
      corporate income tax law in its fifth plenary session. The new corporate income
      tax law unifies the application, scope, tax rate, tax deduction and preferential
      policy for both domestic and foreign-invested enterprises.  The new
      corporate income tax law will be effective on January 1, 2008.  According
      to the new corporate income tax law, the applicable income tax rate for our
      operating subsidiaries may be subject to change.  As the implementation
      detail has not yet been announced, we cannot be sure of the potential impact
      of
      such new corporate income tax law on our financial position and operating
      results.




*Net
      Income.* Net
      income increased $0.24million, or 23.53% to $1.28 million for the six months
      ended June 30, 2007 from $1.04 million for the same period of 2006.




***Liquidity
      and Capital Resources***





General




As
      of
      June 30, 2007, we had cash and cash equivalents (including restricted cash)
      of
      $2.5 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)****Six
                Months Ended June 30,****2007**
            
            **2006**Net
                cash provided by (used in) operating activities
            
            $
            (8,996,513
            )
            $
            4,578,646Net
                cash provided by (used in) investing activities
            
            $
            (5,776,028
            )
            $
            (7,682,875
            )Net
                cash provided by (used in) financing activities
            
            $
            14,594,959
            
            $
            (2,675,029
            )Net
                cash flow (outflow)
            
            $
            (14,772,541
            )
            $
            (10,357,904
            )







24




Operating
      Activities




Net
      cash
      provided by operating activities was $(8.99) million for the six months period
      ended June 30, 2007, which is an decrease of $13.57 million from $4.58 million
      for the same period of 2006. The decrease of the cash provided by operating
      activities was primarily a result of the decrease in accounts and other payables
      in 2007, as compared to the year of 2006.




Investing
      Activities




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




Net
      cash
      provided by investing activities for the six months period ended June 30, 2007
      was $5.78 million, which is an decrease of $1.9 million from net cash provided
      by investing activities of $7.68 million for the same period of 2006. The
      decrease was primarily due to the decrease in restricted cash in 2007, as
      compared to the year of 2006.




Financing
      Activities




Net
      cash
      used in financing activities for the six months period ended June 30, 2007
      was
      $14.59 million, which is an increase of $17.27 million from $(2.68) million
      net
      cash used in financing activities during the same period of 2006. The increase
      of the cash used in financing activities was primarily a result of the increase
      of additional paid-in capital, resulting from the private
      placement.




Loan
      Facilities




As
      of
      June 30, 2007, the amounts and maturity dates for our bank loans were as
      follows:




All
      amounts, other than percentages, in thousands of U.S. dollar s.




**Banks**
            
            **Amounts**
            
            **Beginning**
            
            **Ending**
            
            **Duration**Junan
                County Agriculture Bank
            
            
            28.84
            
            
            10/10/2006
            
            
            10/09/2007
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            590.00
            
            
            10/31/2006
            
            
            10/30/2007
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            262.23
            
            
            11/03/2006
            
            
            11/02/2007
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            668.67
            
            
            11/16/2006
            
            
            11/15/2007
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            472.00
            
            
            12/06/2006
            
            
            12/05/2007
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            498.23
            
            
            12/06/2006
            
            
            12/05/2007
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            118.00
            
            
            06/14/2007
            
            
            06/07/2008
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            39.33
            
            
            06/14/2007
            
            
            06/07/2008
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            524.45
            
            
            06/30/2007
            
            
            06/29/2008
            
            
            12
                monthsJunan
                County Agriculture Bank
            
            
            104.89
            
            
            06/30/2007
            
            
            06/29/2008
            
            
            12
                monthsJunan
                County Construction Bank
            
            
            393.33
            
            
            08/31/2006
            
            
            08/31/2007
            
            
            12
                monthsJunan
                County Construction Bank
            
            
            329.09
            
            
            09/08/2006
            
            
            09/07/2007
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            222.89
            
            
            12/14/2006
            
            
            12/15/2007
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            621.47
            
            
            12/11/2006
            
            
            12/10/2007
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            725.05
            
            
            12/11/2006
            
            
            11/15/2007
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            524.45
            
            
            01/12/2007
            
            
            01/11/2008
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            131.11
            
            
            01/11/2007
            
            
            01/10/2008
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            524.45
            
            
            06/08/2007
            
            
            01/29/2008
            
            
            8
                months






25






**Banks**
            
            **Amounts**
            
            **Beginning**
            
            **Ending**
            
            **Duration**Bank
                of China, Junan Branch
            
            
            12.29
            
            
            09/19/2006
            
            
            05/19/2009
            
            
            8
                monthsInternational
                Trust & Investment Co., Ltd.
            
            
            1,311.12
            
            
            06/14/2005
            
            
            06/13/2008
            
            
            36
                monthsLinyi
                Commercial Bank
            
            
            590.00
            
            
            02/07/2007
            
            
            02/06/2008
            
            
            12
                monthsLinyi
                Commercial Bank
            
            
            616.22
            
            
            02/10/2007
            
            
            02/09/2008
            
            
            12
                monthsLinyi
                Commercial Bank
            
            
            314.67
            
            
            04/30/2006
            
            
            10/20/2007
            
            
            12
                monthsLinyi
                Commercial Bank
            
            
            196.67
            
            
            11/30/2006
            
            
            11/29/2007
            
            
            12
                monthsJunan
                Agricultural Development Bank
            
            
            590.00
            
            
            07/20/2006
            
            
            07/19/2007
            
            
            12
                monthsJunan
                Agricultural Development Bank
            
            
            721.11
            
            
            09/05/2006
            
            
            09/04/2007
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            28.84
            
            
            02/05/2007
            
            
            08/01/2007
            
            
            6
                monthsJunan
                County Industrial and Commercial Bank
            
            
            340.89
            
            
            04/26/2007
            
            
            08/10/2007
            
            
            3
                monthsJunan
                County Construction Bank
            
            
            340.89
            
            
            06/06/2007
            
            
            03/05/2008
            
            
            9
                monthsBeijing
                Miyun County Shilipu Rural Financial Institution
            
            
            1,947.01
            
            
            09/28/2006
            
            
            09/27/2007
            
            
            12
                monthsBeijing
                Miyun County Shilipu Rural Financial Institution
            
            
            655.56
            
            
            09/25/2006
            
            
            09/26/2007
            
            
            12
                monthsChina
                Agricultural Bank, Miyun Branch
            
            
            262.22
            
            
            07/19/2006
            
            
            07/18/2007
            
            
            12
                monthsAgricultural
                Development Department of Luotian Government
            
            
            98.33
            
            
            12/11/2006
            
            
            12/11/2010
            
            
            48
                monthsChina
                Agricultural Bank, Luotian Square Branch
            
            
            380.22
            
            
            09/05/2006
            
            
            09/05/2007
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            458.89
            
            
            01/31/2007
            
            
            01/18/2008
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            524.45
            
            
            01/31/2007
            
            
            01/18/2008
            
            
            12
                monthsJunan
                County Industrial and Commercial Bank
            
            
            1,311.12
            
            
            03/06/2007
            
            
            03/05/2008
            
            
            12
                monthsTotal
            
            
            17478.98




As
      shown
      in the above table, we have $17.48 million in loans maturing on or before the
      end of June 30, 2007. We plan to repay this debt either as it matures or
      refinance this debt with other debt.




We
      believe that our currently available working capital, after receiving the
      aggregate proceeds of our capital raising activities and the credit facilities
      referred to above, should be adequate to sustain our operations at our current
      levels through at least the next twelve months.




Obligations
      under Material Contracts




We
      do not
      have any material contractual obligations as of June 30, 2007.




***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:




26





·
            *Method
                of Accounting --*We
                maintain our 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 us
                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.





·
            *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.





·
            *Principles
                of consolidation --*The
                consolidated financial statements are presented in US Dollars and
                include
                the accounts of the Company and its commonly controlled entity. All
                significant inter-company balances and transactions are eliminated
                in
                combination.





As
      of
      June 30, 2007, the particulars of the commonly controlled entities are as
      follows:





Name
                of company
            
            Place
                of incorporation
            
            Attributable
                equity interest %
            
            Registered
                capitalShandong
                Green Foodstuff CO., LTD.
            
            
            PRC
            
            
            80.2
            %
            
            RMB
                100,860,000Luotian
                Green Foodstuff CO., LTD
            
            
            PRC
            
            
            100
            %
            
            RMB
                10,000,000Junan
                Hongrun Foodstuff CO., LTD.
            
            
            PRC
            
            
            100
            %
            
            RMB
                19,000,000Beijing
                Green Foodstuff CO., LTD.
            
            
            PRC
            
            
            100
            %
            
            RMB
                10,000,000





Accounting
      for the Impairment of Long-Lived Assets -- The long-lived assets held and used
      by us 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.




27





*Revenue
      recognition --* Our
      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, we have no other significant obligations and collectibility is
      reasonably assured. Payments received before all of the relevant criteria for
      revenue recognition are satisfied are recorded as unearned revenue.





Our
      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 those 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.





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




28





***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 DISCLOSURE 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 12 months and interest rates are subject to change upon
      renewal. Since April 28, 2006, China People’s Bank has increased the interest
      rate of RMB bank loans with a term of 6 months or less by 0.27%, and loans
      with
      a term of 6 to 12 months by 0.54%. The new interest rates are 5.67% and 6.39%
      for RMB bank loans with a term 6 months or less and loans with a term of 6-12
      months, respectively. The change in interest rates has no impact on our bank
      loans that were made before April 28, 2006. A hypothetical 1.0% increase in
      the
      annual interest rates for all of our credit facilities at March 31, 2006 would
      decrease net income before provision for income taxes by approximately $230,000
      for the six months ended December 31, 2006. 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.





***Foreign
      Exchange Risk***





While
      our
      reporting currency is the U.S. Dollar, all of our consolidated revenues and
      consolidated costs and expenses are denominated in Renminbi. All of our assets
      are denominated in RMB. 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 U.S. Dollars and RMB. If the RMB depreciates against
      the
      U.S. Dollar, the value of our RMB revenues, earnings and assets as expressed
      in
      our U.S. Dollar financial statements will decline. We have not entered into
      any
      hedging transactions in an effort to reduce our exposure to foreign exchange
      risk.




29





***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.




**ITEMS
      4 AND 4T. CONTROLS AND PROCEDURES**





*Evaluation
      of Disclosure Controls and Procedures.*





We
      maintain a system of disclosure controls and procedures. The term “disclosure
      controls and procedures,” as defined by regulations of the SEC, means controls
      and other procedures that are designed to ensure that information required
      to be
      disclosed in the reports that we file or submit to the Securities and Exchange
      Commission (the “SEC”) under the Exchange Act, is recorded, processed,
      summarized and reported, within the time periods specified in the SEC’s rules,
      regulations and forms. Disclosure controls and procedures include, without
      limitation, controls and procedures designed to ensure that information required
      to be disclosed by us in the reports that we file or submit to the SEC under
      the
      Exchange Act is accumulated and communicated to the our management, including
      our principal executive officer and our principal financial officer, or persons
      performing similar functions, as appropriate to allow timely decisions to be
      made regarding required disclosure.  Si
      Chen,
      our Chief Executive Officer, and Huanxiang Sheng, our Interim Chief Financial
      Officer, have evaluated the design and operating effectiveness of our disclosure
      controls and procedures as of June 30, 2007. Based upon their evaluation, these
      executive officers have concluded that our disclosure controls and procedures
      are effective as of June 30, 2007.





*Internal
      Control Over Financial Reporting.*





We
      also
      maintain internal control over financial reporting. The term “internal control
      over financial reporting,” as defined by regulations of the SEC, means a process
      designed by, or under the supervision of, our principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      our board of directors, management and other personnel, to provide reasonable
      assurance regarding the reliability of financial reporting and the preparation
      of financial statements for external purposes in accordance with generally
      accepted accounting procedures in the U.S. (“GAAP”), and includes those policies
      and procedures that:





·
            Pertain
                to the maintenance of records that in reasonable detail accurately
                and
                fairly reflect the transactions and dispositions of our
                assets;





·
            Provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with GAAP, and
                that our
                receipts and expenditures are being made only in accordance with
                authorizations of our management and directors;
                and  ·
            Provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material effect on our consolidated financial
                statements.






30




*Changes
      in Internal Control Over Financial Reporting.*





There
      has
      not been any change in our internal control over financial reporting that has
      materially affected or is reasonably likely to materially affect our internal
      control over financial reporting.




**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, that we expect to have a material
      adverse effect on our financial condition.




**ITEM
      1A.  RISK FACTORS**





*The
      shares of our common stock being offered for resale by the selling stockholders
      are highly speculative in nature, involve a high degree of risk and should
      be
      purchased only by persons who can afford to lose the entire amount invested
      in
      the common stock. Before purchasing any of the shares of common stock, you
      should carefully consider the following factors relating to our business and
      prospects. If any of the following risks actually occurs, our business,
      financial condition or operating results will suffer, the trading price of
      our
      common stock could decline, and you may lose all or part of your investment.
      You
      should also refer to the other information about us contained in this
      prospectus, including our financial statements and related
      notes.*




**BUSINESS
      RISKS**




***We
      may not be able to obtain sufficient raw materials to satisfy our production
      requirements and any decline in the amount or quality of raw materials could
      reduce our sales and negatively affect our financial prospects.***




In
      2006,
      we procured approximately 16,181 metric tons of chestnuts and approximately
      23,300 metric tons of vegetables and other raw materials from a number of third
      party suppliers and produced approximately 220 metric tons of chestnuts and
      approximately 1,980 metric tons of vegetables and other raw materials from
      our
      own agricultural operations. We may have to increase the number of our suppliers
      of raw materials and expand our own agricultural operations in the future to
      meet growing production demands. We may not be able to locate new suppliers
      who
      could provide us with sufficient materials to meet our needs and we may not
      be
      able to expand our own agricultural operations in a timely manner to satisfy
      our
      needs. Any interruptions to or decline in the amount or quality of our raw
      materials supply could materially disrupt our production and adversely affect
      our business and financial condition and financial prospects.





31




***The
      average price we paid for our raw materials experienced significant fluctuation
      during the three years ended December 31, 2004, 2005 and 2006. These price
      fluctuations could result in fluctuations in our profit margins and could
      materially adversely affect our financial condition.***




The
      average prices we paid for chestnuts in 2004, 2005 and 2006 were approximately
      $805 per metric ton, $884 per metric ton, and $713 per metric ton respectively,
      excluding any value added tax assessed on the purchased chestnuts. The prices
      that we pay for our raw materials may not be stable in the future. Price changes
      may result in unexpected increases in production costs, and we may be unable
      to
      increase the prices of our products to offset these increased costs and
      therefore may suffer a reduction to our profit margins. We do not currently
      hedge against changes in our raw material prices. **** If
      the
      costs of raw materials or other costs of production and distribution of our
      products increase further, and we are unable to entirely offset these increases
      by raising the prices of our products, our profit margins and financial
      condition could be adversely affected.





***Our
      sales and reputation may be affected by product liability claims, litigation,
      product recalls, or adverse publicity in relation to our products.***




The
      sale
      of products for human consumption involves an inherent risk of injury to
      consumers. We face risks associated with product liability claims, litigation,
      or product recalls, if our products cause injury, or become adulterated or
      misbranded. Our products are subject to product tampering, and to contamination
      risks, such as mold, bacteria, insects and other pests, shell fragments and
      off-flavor contamination during the various stages of the procurement,
      production, transportation and storage processes. If any of our products were
      to
      be tampered with, or become tainted in any of these respects and we were unable
      to detect this, our products could be subject to product liability claims or
      product recalls. Our ability to sell products could be reduced if certain
      pesticides, herbicides or other chemicals used by growers have left harmful
      residues on portions of the crop or that the crop has been contaminated by
      other
      agents.





Although
      we have never had a product recall in the past, we have experienced product
      liability claims that were made by our customers. On average, we experience
      and
      expect to continue to experience product liability claims in the amount of
      approximately $30,000 to $40,000 per year. However, we have no control over
      the
      amount of claims made in any year and larger claims of product defect or product
      liability may be made in the future.





We
      would
      be liable for the full amount of any damages awarded against us in any product
      liability claim. As the insurance industry in China is still in an early stage
      of development, business insurance is not readily available in China. To the
      extent that we suffer a loss of a type which would normally be covered by
      insurance in the United States, such as product liability and general liability
      insurance, we would incur significant expenses in both defending any action
      and
      in paying any claims that result from a settlement or judgment. Product
      liability claims and product recalls could have a material adverse effect on
      the
      demand for our products and on our business goodwill and reputation. Adverse
      publicity could result in a loss of consumer confidence in our products.





32




***We
      may be unable to manage future rapid growth.***




We
      have
      grown rapidly over the last few years. Our sales increased by 77% from
      $27,735,833 in 2004 to $49,560,957 in 2006. The number of product types we
      sold
      increased from approximately 100 in 2004 to approximately 192 in early 2007.
      We
      intend to continue to expand the volume and variety of products we offer, as
      well as the geographical scope of our sales and production facilities. Our
      business growth could place a significant strain on our managerial, operational
      and financial resources. Our ability to manage future growth will depend on
      our
      ability to continue to implement and improve operational, financial and
      management information systems on a timely basis and to expand, train, motivate
      and manage our workforce. We cannot assure you that our personnel, systems,
      procedures and controls will be adequate to support our future growth. Failure
      to effectively manage our expansion may lead to increased costs, a decline
      in
      sales and reduced profitability.





***Our
      expansion strategy may not prove successful and could adversely affect our
      existing business.***




Our
      growth strategy includes the expansion of our manufacturing operations including
      new production lines and agricultural operations. In the past few years, we
      have
      expanded rapidly. In 2003, Luotian Lorain set up one production line with a
      production of 600 metric tons per year, and in 2004, a second production line
      with a production of 9,912 metric tons per year. In 2003, Beijing Lorain set
      up
      one production line with a production of 9,912 **** metric
      tons per year, and in 2004, three additional production lines with a production
      of 1,425 metric tons per year per line. In both 2005 and 2006, Shandong Lorain
      established Chestnut planting bases. Beijing Lorain established a Chestnut
      planting base in 2005, a sticky corn and sweet corn planting base in 2004 and
      pumpkin planting base in 2005. We also plan to expand our sales in China and
      internationally. We will need to engage in various forms of promotional and
      marketing activities in order to develop branding of our products and increase
      our market share in new and existing markets.





The
      implementation of this strategy may involve large transactions and present
      financial, managerial and operational challenges. We could also experience
      financial or other setbacks if any of our growth strategies incur problems
      of
      which we are not presently aware. We may have difficulty in successfully
      expanding the sale of our products in areas that have not traditionally
      experienced high levels chestnut consumption due to lack of chestnut
      familiarity. If we fail to generate sufficient sales in new markets or increase
      our sales in existing markets, we may not be able to recover the production,
      distribution, promotional and marketing expenses, as well as administrative
      costs, we have incurred in developing such markets.





***The
      acquisition of other businesses could pose risks to our profitability.***




We
      may
      try to grow through acquisitions in the future. Any proposed acquisition could
      result in accounting charges, potentially dilutive issuances of equity
      securities, and increased debt and contingent liabilities, any of which could
      have a material adverse effect on our existing business and the market price
      of
      our common stock. Acquisitions, in general, entail many risks, including risks
      relating to the failed integration of the acquired operations, diversion of
      management’s attention, and the potential loss of key employees of the acquired
      organizations. We may be unable to integrate successfully businesses or the
      personnel of any business that might be acquired in the future, and our failure
      to do so could have a material adverse effect on our business and on the market
      price of our common stock.





33




***We
      are subject to risks of doing business internationally. If the international
      market does not grow as we expect, our business and financial condition may
      be
      adversely affected.***




We
      conduct a substantial amount of business with overseas distributors primarily
      from Japan, Korea, countries in Asia and western countries. During the year
      ended 2004, 2005 and 2006, sales outside China accounted for 45%, 44% and 52%
      of
      our total sales, respectively. Our international operations are subject to
      a
      number of inherent risks, including:





·
            chestnut
                products may not be widely recognized internationally, especially
                in
                western countries;





·
            local
                economic and political conditions, including disruptions in trading
                markets;





·
            restrictive
                foreign governmental actions, including restrictions on transfers
                of funds
                and trade;





·
            protection
                measures, including export duties and quotas and customs duties and
                tariffs;





·
            currency
                exchange rate fluctuations; and





·
            earthquakes,
                tsunamis, floods or other major disasters may limit the imported
                food
                products.





Any
      of
      the foregoing risks could have a material and adverse effect on our operating
      results. As a result, our products and our revenues would be decreased and
      we
      may need to adjust our market strategy.





***We
      mainly rely on distributors to sell our products. Any delays in delivery or
      poor
      handling by distributors and third-party transport operators may affect our
      sales and damage our reputation.***




In
      2006,
      we sold over 81% of our products through over 180 distributors. We rely on
      these
      distributors for the distribution of our products. A significant portion of
      our
      revenues historically have been derived from a limited number of domestic
      supermarkets and international distributors, particularly in our chestnut
      processing business. The sales to our five largest customers and overseas
      retailers accounted for approximately 27%, 37%, and 43% of our total revenue
      in
      2004, 2005 and 2006 respectively. The loss of any of these customers and
      international distributors or a material decrease in purchases could result
      in
      decreased sales and adversely impact our revenues.





34




Additionally,
      the distribution service provided by these distributors could be suspended
      and
      could cause interruption to the supply of our products to overseas retailers
      in
      the case of unforeseen events. Delivery disruptions may occur for various
      reasons beyond our control, including poor handling by distributors or third
      party transport operators, transportation bottlenecks, natural disasters and
      labor strikes, and could lead to delayed or lost deliveries. Poor handling
      by
      distributors and third-party transport operators could also result in damage
      to
      our products. If our products are not delivered to retailers on time, or are
      delivered damaged, or our products are contaminated during the stage of
      transportation or storage, we would be liable for the compensation, and we
      could
      lose business and our reputation could be harmed.





***The
      development and introduction of new products is key to our expansion strategy.
      Failure to do so may cause us to lose our competitiveness in the food industry
      and may cause our profits to decline.***




If
      we are
      unable to gain market acceptance or significant market share for the new
      products we introduce, then we will incur development, production and marketing
      costs which we would not be able to recover. We constantly introduce new
      packaging and new flavors for our products. For example, we have introduced
      15
      new products in 2006, and we will be introducing about 20 new products in
      2007. **** The
      success of the new products we introduce depends on our ability to anticipate
      the tastes and dietary habits of consumers and to offer products that appeal
      to
      their preferences. We intend to introduce new product lines including different
      flavors, different sizes and packaging. We may not be able to gain market
      acceptance or significant market share for our new products. Consumer
      preferences change, and any new products that we introduce may fail to meet
      the
      particular tastes or requirements of consumers, or may be unable to replace
      their existing preferences. Our failure to anticipate, identify or react to
      these particular tastes or changes could result in reduced demand for our
      products, which could in turn cause us to be unable to recover our development,
      production and marketing costs, thereby leading to a decline in our
      profitability.





***We
      are dependent on certain key personnel and loss of these key personnel could
      have a material adverse effect on our research and development, operations
      and
      revenue.***




The
      Lorain Group Companies were founded in 1995 by Mr. Si Chen, our chairman and
      chief executive officer. Since then, Mr. Chen and our senior management team
      have developed us into a leading food production company. Mr. Chen, together
      with other senior management, has been the key driver of our strategy and has
      been fundamental to our achievements to date. The successful management of
      our
      business is, to a considerable extent, dependent on the services of Mr. Chen
      and
      other senior management. The loss of the services of any key management employee
      or failure to recruit a suitable or comparable replacement could have a
      significant impact upon our ability to manage our business effectively and
      our
      business and future growth may be adversely affected.





We
      compete for qualified personnel with other food processing companies, food
      retailers and research institutions. Intense competition for these personnel
      could cause our compensation costs to increase significantly, which could have
      a
      material adverse effect on our results of operations. Our future success and
      ability to grow our business will depend in part on the continued service of
      these individuals and our ability to identify, hire and retain additional
      qualified personnel. If we are unable to attract and retain qualified employees,
      we may be unable to meet our business and financial goals.





35




***We
      face increasing competition from both domestic and foreign companies, which
      may
      affect our market share and profit margins.***




The
      food
      industry in China is fragmented. Our ability to compete against other national
      and international enterprises is, to a significant extent, dependent on our
      ability to distinguish our products from those of our competitors by providing
      large volumes and high quality products at reasonable prices that appeal to
      consumers’ tastes and preferences. Some of our competitors may have been in
      business longer than we have, may be better established in their markets. Our
      current or future competitors may provide products comparable or superior to
      those we provide or adapt more quickly than we do to evolving industry trends
      or
      changing market requirements. Increased competition may result in price
      reductions, reduced margins and loss of market share, any of which could
      materially adversely affect our profit margins. We cannot assure you that we
      will be able to compete effectively against current and future
      competitors.





***We
      may be adversely affected by a change in consumer preferences, which may result
      in decreased demand for our products.***




Consumer
      tastes can change rapidly due to many factors, including shifting consumer
      preferences, and spending habits. A general decline in the consumption of our
      chestnuts products and other products could occur as a result of a change in
      consumer preferences, perceptions and spending habits at any time and future
      success will depend partly on our ability to anticipate or adapt to such changes
      and to offer, on a timely basis, new products that meet consumer preferences.
      Our failure to adapt our products offering to respond to such changes, may
      result in reduced demand and lower prices for our products and a decline in
      the
      market share of our products. Any changes in consumer preferences could result
      in lower sales of our products, put pressure on pricing or lead to increased
      levels of selling and promotional expenses, resulting in a material adverse
      effect on our sales volumes, sales and profits.





***An
      increase in the cost of energy could affect our
      profitability.***




Recently,
      we have experienced significant increases in energy costs, and energy costs
      could continue to rise, which would result in higher distribution, freight
      and
      other operating costs. Our future operating expenses and margins will be
      dependent on our ability to manage the impact of cost increases.





***Our
      chestnut products and brand names may be subject to counterfeiting or imitation,
      which could impact upon our reputation and brand name as well as lead to higher
      administrative costs.***




While
      we
      sell our products both under our brand name and under private labels, we regard
      brand positioning as the core of our competitive strategy, and intend to
      position our "Lorain" and “Yimeng Lorain” brand to promote the consumption of
      green foods by our customers. We believe our advanced processing technology
      makes it difficult for illegal manufacturers to counterfeit our products.
      Although we have experienced limited counterfeiting and imitation of our
      chestnut products, we cannot guarantee that counterfeiting or imitation of
      our
      products will not occur in the future or that we will be able to detect it
      and
      deal with it effectively. Any occurrence of counterfeiting or imitation could
      impact negatively upon our corporate and brand image, particularly if the
      counterfeit or imitation products cause sickness, or injury to consumers. In
      addition, counterfeit or imitation products could result in a reduction in
      our
      market share, a loss of revenues or an increase in our administrative expenses
      in respect of detection or prosecution.





36




***We
      rely on an outside contractor to provide a majority of our labor.***




We
      hire
      Linyi Zhifu Labor Service Company to provide employees to our production
      facilities. During normal production times Linyi Zhifu Labor Service Company
      provides about 5 out of every 6 of our production line personnel. During times
      of peak production Linyi Zhifu Labor Service Company usually provides the
      additional personnel needed to meet the additional production demands which
      increases the ratio of Linyi Zhifu Labor Service Company employees to our
      employees above the 5 out of every 6 mark. Under our arrangement with Linyi
      Zhifu Labor Service Company we pay their employees directly for services
      rendered to our Company and we pay Linyi Zhifu Labor Service Company a fee
      for
      their services related to providing employees to our business. Linyi Zhifu
      Labor
      Service Company pays for state pension contribution and social insurance for
      its
      employees.





Should
      Linyi Zhifu Labor Service Company be unable continue to provide the number
      of
      employees we need for our facilities our production could be disrupted. Linyi
      Zhifu Labor Service Company could raise their service fees or terminate their
      relationship with us in the future which may result in increased production
      costs which we may not be able to pass on to our customers.




**REGULATORY
      RISKS**




***Government
      regulation could increase our costs of production and increase our legal and
      regulatory expenditures.***




The
      food
      industry is subject to extensive regulation by Chinese government agencies.
      Among other things, these regulations govern the manufacturing, importation,
      processing, packaging, storage, exportation, distribution and labeling of our
      products. New or amended statutes and regulations, increased production at
      our
      existing facilities, and our expansion into new operations and jurisdictions
      may
      require us to obtain new licenses and permits and could require us to change
      our
      methods of operations at costs that could be substantial. If the relevant
      regulatory authorities set standards with which we are unable to comply or
      which
      increase our production costs, our ability to sell products may be
      limited.





***Changes
      in the existing laws and regulations or additional or stricter laws and
      regulations on environmental protection in China may cause us to incur capital
      expenditures.***




We
      carry
      on our business in an industry that is subject to PRC environmental protection
      laws and regulations. These laws and regulations require enterprises engaged
      in
      manufacturing and construction that may cause environmental waste to adopt
      effective measures to control and properly dispose of waste gases, waste water,
      industrial waste, dust and other environmental waste materials, as well as
      fee
      payments from producers discharging waste substances. Fines may be levied
      against producers causing pollution. If failure to comply with such laws or
      regulations results in environmental pollution, the administrative department
      for environmental protection can levy fines. If the circumstances of the breach
      are serious, it is at the discretion of the central government of the PRC
      including all governmental subdivisions to cease or close any operation failing
      to comply with such laws or regulations. The Chinese government may also change
      the existing laws or regulations or impose additional or stricter laws or
      regulations, compliance with which may cause us to incur significant capital
      expenditures, which we may be unable to pass on to our customers through higher
      prices for our products.





37




***Changes
      in existing PRC food hygiene laws may cause us to incur additional costs to
      comply with the more stringent laws and regulations, which could have an adverse
      impact on our financial position.***




Manufacturers
      in food industry operating in China are subject to compliance with PRC food
      hygiene laws and regulations. These food hygiene laws require all enterprises
      engaged in the production of chestnut and other various vegetables and fruits
      to
      obtain a hygiene license for each of their production facilities. They also
      set
      out hygiene standards with respect to food and food additives, packaging and
      containers, information to be disclosed on packaging as well as hygiene
      requirements for food production and sites, facilities and equipment used for
      the transportation and sale of food. Failure to comply with PRC food hygiene
      laws may result in fines, suspension of operations, loss of hygiene licenses
      and, in more extreme cases, criminal proceedings against an enterprise and
      its
      management. Although we are in compliance with current food hygiene laws, in
      the
      event that the PRC government increases the stringency of such laws, our
      production and distribution costs may increase, and we may be unable to pass
      these additional costs on to our customers.




**FINANCIAL
      RISKS**




***We
      are subject to credit risk in respect of account
      receivables.***




We
      offer
      credit terms of between 90 to 180 days to most of our international distributors
      and between 30 to 120 days for many of our domestic distributors. For each
      of
      the three years ended December 31, 2004, 2005 and 2006, our third party trade
      receivables outstanding were $7,611,531, $7,992,923 and $11,805,229, which
      accounted for 16.6%, 14.7%, and 24.8%, of our total assets, respectively. Should
      a significant number of our customers fail to settle the account receivables
      in
      full for any reasons, our financial conditions and profitability could be
      adversely effected.





***Our
      operations are cash intensive, and our business could be adversely affected
      if
      we fail to maintain sufficient levels of working
      capital.***




We
      spent
      a significant amount of cash in our operations, principally to fund our raw
      material procurement. Our suppliers, in particular farmers of chestnuts,
      vegetables and fruits, and suppliers of packaging materials usually grant us
      a
      credit period. In turn, we require our customers and distributors to make
      payment either prior to or shortly after delivery, although we offer some of
      our
      long-standing customers credit terms. We generally fund most of our working
      capital requirements out of cash flow generated from operations. If we fail
      to
      generate sufficient sales, or if we suffer decreasing sales to customers as
      a
      result of failing to offer credit terms, if our suppliers stop to offer us
      credit terms, or if we were to experience difficulties in collecting our
      accounts receivables, we may not have sufficient cash flow to fund our operating
      costs and our business could be adversely affected.





38




***Our
      borrowing levels and significant interest payment obligations could limit the
      funds we have available for various business
      purposes.***




We
      have
      relied mainly on a high level of short-term borrowings to fund a portion of
      our
      capital requirements, and may continue to do so in the future. As of December
      31, 2006, we had total borrowings of $23,248,325. Our ratio of total
      indebtedness to total assets stood at 48.88% as at December 31, 2006. As at
      December 31, 2006, 94.04%, of such borrowings was due within one year, primarily
      from our use of short-term loans from Chinese banks to satisfy our working
      capital needs. Historically, we have repaid a significant portion of such
      short-term loans by rolling over the loans on an annual basis. In addition,
      we
      may not have sufficient funds available to pay all of our borrowings upon
      maturity. Failure to roll over our short-term borrowings at maturity or to
      service our debt could result in the imposition of penalties, including
      increases in rates of interest that we pay on our debt and legal actions against
      us by our creditors, or even insolvency.





***The
      discontinuation of any preferential tax treatment or other incentives currently
      available to us in the PRC could materially and adversely affect our business,
      financial condition and results of operations.***





Our
      subsidiaries enjoy certain special or preferential tax treatments regarding
      foreign enterprise income tax in accordance with the “Income Tax Law of the PRC
      for Enterprises with Foreign Investment and Foreign Enterprises” and its
      implementing rules. Accordingly, they have been entitled to tax concessions
      whereby the profit for the first two financial years beginning with the first
      profit-making year (after setting off tax losses carried forward from prior
      years) is exempt from income tax in the PRC and the profit for each of the
      subsequent three financial years is taxed at 50% of the prevailing tax rates
      set
      by the relevant tax authorities. However, on March 16, 2007, the PRC’s National
      People’s Congress passed a new corporate income tax law, which will be effective
      on January 1, 2008. This new corporate income tax unifies the corporate income
      tax rate, cost deduction and tax incentive policies for both domestic and
      foreign-invested enterprises. According to the new corporate income tax law,
      the
      applicable corporate income tax rate of our operating subsidiary will be moved
      up to a rate of 25% over a five-year grandfather period. We expect the measures
      to implement this grandfather period to be enacted by the PRC government in
      the
      coming months and we will make an assessment of what the impact of the new
      unified tax law is expected to be in the grandfather period. The discontinuation
      of any such special or preferential tax treatment or other incentives could
      have
      an adverse affect our business, financial condition and results of
      operations.





39




Under
      current PRC tax law, regulations and rulings, dividends from our operations
      in
      China paid to us (as a foreign legal person) are not currently subject to PRC
      income tax. If these distributions become subject to tax in the future, our
      net
      income would be adversely affected.




**RISKS
      RELATING TO OUR CORPORATE GOVERNANCE STRUCTURE**




***The
      concentration of ownership of our securities by our controlling stockholder
      who
      does not participate in the management of our business and who may have
      conflicting interests can result in stockholder votes that are not in our best
      interests or the best interests of our minority
      stockholders.***




Mr.
      Akazawa, is the record owner of approximately 65.43% of our outstanding voting
      securities, giving him a controlling interest in the Company. However, Mr.
      Akazawa is not an executive officer or director of the Company and is not a
      participant in any way in the day to day affairs of the Company. Mr. Akazawa
      may
      have little to no knowledge of the details of the Company’s operations and does
      not participate in the corporate governance of the Company. To the extent that
      Mr. Akazawa does participate as a stockholder in the governance of the Company's
      affairs, his interests may be conflicted since he is an affiliate of one of
      our
      largest customers and he may act in his best interests or in our customer’s best
      interest instead of our best interests. Additionally, Mr. Akazawa may act as
      if
      he has little or no economic interest in the Company in his role as stockholder
      since he has granted an option to our sole director and Chief Executive Officer,
      Mr. Chen, allowing Mr. Chen to buy 90% of Mr. Akazawa's interest in the Company
      at a fixed price at a future time in accordance with the terms of an option
      agreement between the two parties. The result of this option agreement is that
      Mr. Akazawa has only limited economic benefit if our financial performance
      excels as he will have only limited benefit from any upward movement in our
      stock price since most of the stock that he currently owns is subject to the
      option in favor of Mr. Chen.




***We
      do not have any independent directors and may be unable to appoint any qualified
      independent directors.***




We
      currently do not have any independent directors. We plan to appoint a number
      of
      independent directors which will constitute a majority of our board of directors
      before our common stock is listed on a national securities exchange, but we
      may
      not be able to identify independent directors qualified to be on our board
      that
      are willing to serve on our board.





***We
      may be exposed to potential risks relating to our internal controls over
      financial reporting and our ability to have those controls attested to by our
      independent auditors.***




As
      directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the
      Securities and Exchange Commission adopted rules requiring public companies
      to
      include a report of management on the Company’s internal controls over financial
      reporting in their annual reports, including Form 10-K. In addition, the
      independent registered public accounting firm auditing a company’s financial
      statements must also attest to and report on management’s assessment of the
      effectiveness of the Company’s internal controls over financial reporting as
      well as the operating effectiveness of the Company’s internal controls. We were
      not subject to these requirements for the fiscal year ended December 31, 2006.
      Accordingly, we have not evaluated our internal control systems in order to
      allow our management to report on, and our independent auditors to attest to,
      our internal controls as required by these requirements of SOX 404. Under
      current law, we will be subject to these requirements beginning with our annual
      report for the fiscal year ending December 31, 2007. We can provide no assurance
      that we will comply with all of the requirements imposed thereby. There can
      be
      no assurance that we will receive a positive attestation from our independent
      auditors. In the event we identify significant deficiencies or material
      weaknesses in our internal controls that we cannot remediate in a timely manner
      or we are unable to receive a positive attestation from our independent auditors
      with respect to our internal controls, investors and others may lose confidence
      in the reliability of our financial statements.





40




***We
      may be exposed to potential risks relating to Lorain Holding’s acquisition of
      certain interests in Lorain Group Companies from a British Virgin Islands
      company.***




Lorain
      Holding acquired certain interests in the Lorain Group Companies from a British
      Virgin Islands company controlled by Mr. Chen. According to a notice promulgated
      by SAFE in October 2005 (“Notice No. 75”), Mr. Chen is required to register with
      and obtain approvals from SAFE or its agency in connection with his direct
      offshore investment activities before March 31, 2006. Pursuant to the Notice
      No.
      75, if a PRC shareholder with a direct or indirect stake in an offshore parent
      company fails to make the required SAFE registration, the PRC subsidiaries
      of
      such offshore parent company may be prohibited from making distributions of
      profit to the offshore parent and from paying the offshore parent proceeds
      from
      any reduction in capital, share transfer or liquidation in respect of the PRC
      subsidiaries. Because Mr. Chen did not register with the relevant authorities
      to
      disclose his offshore investment before March 31, 2006, it is uncertain whether
      it will affect our acquisition of interests in Lorain Group Companies from
      this
      British Virgin Islands company and what types of actions those authorities
      might
      take, including potential action against British Virgin Islands
      company, Lorain Holding and the Lorain Group Companies.




**RISKS
      RELATED TO DOING BUSINESS IN CHINA**




***Changes
      in China’s political or economic situation could harm us and our operating
      results.***




Economic
      reforms adopted by the Chinese government have had a positive effect on the
      economic development of the country, but the government could change these
      economic reforms or any of the legal systems at any time. This could either
      benefit or damage our operations and profitability. Some of the things that
      could have this effect are:





·
            Level
                of government involvement in the
                economy;




·
            Control
                of foreign exchange;




·
            Methods
                of allocating resources;




·
            Balance
                of payments position;




·
            International
                trade restrictions; and




41




·
            International
                conflict.




The
      Chinese economy differs from the economies of most countries belonging to the
      Organization for Economic Cooperation and Development, or OECD, in many ways.
      For example, state-owned enterprises still constitute a large portion of the
      Chinese economy, and weak corporate governance traditions and a lack of flexible
      currency exchange policy continue to persist. As a result of these differences,
      we may not develop in the same way or at the same rate as might be expected
      if
      the Chinese economy were similar to those of the OECD member
      countries.





***Our
      business is largely subject to the uncertain legal environment in China and
      your
      legal protection could be limited.***




The
      Chinese legal system is a civil law system based on written statutes. Unlike
      common law systems, it is a system in which precedents set in earlier legal
      cases are not generally used. The overall effect of legislation enacted over
      the
      past 20 years has been to enhance the protections afforded to foreign invested
      enterprises in China. However, these laws, regulations and legal requirements
      are relatively recent and are evolving rapidly, and their interpretation and
      enforcement involve uncertainties. These uncertainties could limit the legal
      protections available to foreign investors, such as the right of foreign
      invested enterprises to hold licenses and permits such as requisite business
      licenses. In addition, all of our executive officers and our directors are
      residents of China and not of the U.S., and substantially all the assets of
      these persons are located outside the U.S. As a result, it could be difficult
      for investors to effect service of process in the U.S., or to enforce a judgment
      obtained in the U.S. against our Chinese operations and
      subsidiaries.





***The
      Chinese government exerts substantial influence over the manner in which we
      must
      conduct our business activities.***




Only
      recently has China permitted provincial and local economic autonomy and private
      economic activities. The Chinese government has exercised and continues to
      exercise substantial control over virtually every sector of the Chinese economy
      through regulation and state ownership. Our ability to operate in China may
      be
      harmed by changes in its laws and regulations, including those relating to
      taxation, import and export tariffs, environmental regulations, land use rights,
      property and other matters. We believe that our operations in China are in
      material compliance with all applicable legal and regulatory requirements.
      However, the central or local governments of the jurisdictions in which we
      operate may impose new, stricter regulations or interpretations of existing
      regulations that would require additional expenditures and efforts on our part
      to ensure our compliance with such regulations or interpretations.





Accordingly,
      government actions in the future, including any decision not to continue to
      support recent economic reforms and to return to a more centrally planned
      economy or regional or local variations in the implementation of economic
      policies, could have a significant effect on economic conditions in China or
      particular regions thereof, and could require us to divest ourselves of any
      interest we then hold in Chinese properties or joint ventures.





42




***Future
      inflation in China may inhibit our ability to conduct business profitably in
      China.***




In
      recent
      years, the Chinese economy has experienced periods of rapid expansion and highly
      fluctuating rates of inflation. During the past ten years, the rate of inflation
      in China has been as high as 20.7% and as low as -2.2%. These factors have
      led
      to the adoption by the Chinese government, from time to time, of various
      corrective measures designed to restrict the availability of credit or regulate
      growth and contain inflation. High inflation in the future may cause the Chinese
      government to impose controls on credit and/or prices, or to take other action,
      which could inhibit economic activity in China, and thereby harm the market
      for
      our products. Likewise, negative inflation could have an unfavorable effect
      on
      our business profitability in China. Negative inflation may cause a period
      where
      consumers are reluctant to spend, as consumers anticipate lower prices for
      products in the future. In the event of negative inflation, the Chinese
      government may impose controls on credit and/or prices, or take other actions,
      which could inhibit economic activity, harming the market for our
      products.





***Restrictions
      on currency exchange may limit our ability to receive and use our revenues
      effectively.***




The
      majority of our revenues will be settled in Renminbi and U.S. Dollars, and
      any
      future restrictions on currency exchanges may limit our ability to use revenue
      generated in Renminbi to fund any future business activities outside China
      or to
      make dividend or other payments in U.S. dollars. Although the Chinese government
      introduced regulations in 1996 to allow greater convertibility of the Renminbi
      for current account transactions, significant restrictions still remain,
      including primarily the restriction that foreign-invested enterprises may only
      buy, sell or remit foreign currencies after providing valid commercial documents
      at those banks in China authorized to conduct foreign exchange business. In
      addition, conversion of Renminbi for capital account items, including direct
      investment and loans, is subject to governmental approval in China, and
      companies are required to open and maintain separate foreign exchange accounts
      for capital account items. We cannot be certain that the Chinese regulatory
      authorities will not impose more stringent restrictions on the convertibility
      of
      the Renminbi.





***Failure
      to comply with PRC regulations relating to the establishment of offshore special
      purpose companies by PRC residents may subject our PRC resident stockholders
      to
      personal liability, limit our ability to acquire PRC companies or to inject
      capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
      distribute profits to us or otherwise materially adversely affect us.***





In
      October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued
      the Notice on Relevant Issues in the Foreign Exchange Control over Financing
      and
      Return Investment Through Special Purpose Companies by Residents Inside China,
      generally referred to as Circular 75, which required PRC residents to register
      with the competent local SAFE branch before establishing or acquiring control
      over an offshore special purpose company, or SPV, for the purpose of engaging
      in
      an equity financing outside of China on the strength of domestic PRC assets
      originally held by those residents. Internal implementing guidelines issued
      by
      SAFE, which became public in June 2007 (known as Notice 106), expanded the
      reach
      of Circular 75 by (i) purporting to cover the establishment or acquisition of control by PRC residents
      of offshore entities which merely acquire “control” over domestic companies or
      assets, even in the absence of legal ownership; (ii) adding
      requirements relating to the source of the PRC resident’s funds used to
      establish or acquire the offshore entity; (iii) covering
      the use of existing offshore entities for offshore financings; (iv) purporting to cover situations in which an offshore SPV establishes a new
      subsidiary in China or acquires an unrelated company or unrelated assets in
      China; and (v) making
      the domestic affiliate of the SPV responsible for the accuracy of certain
      documents which must be filed in connection with any such registration, notably,
      the business plan which describes the overseas financing and the use of
      proceeds. Amendments to registrations made under Circular 75 are required in
      connection with any increase or decrease of capital, transfer of shares, mergers
      and acquisitions, equity investment or creation of any security interest in
      any
      assets located in China to guarantee offshore obligations, and Notice 106 makes
      the offshore SPV jointly responsible for these filings. In the case of an SPV
      which was established, and which acquired a related domestic company or assets,
      before the implementation date of Circular 75, a retroactive SAFE registration
      was required to have been completed before March 31, 2006; this date was
      subsequently extended indefinitely by Notice 106, which also required that
      the
      registrant establish that all foreign exchange transactions undertaken by the
      SPV and its affiliates were in compliance with applicable laws and regulations.
      Failure to comply with the requirements of Circular 75, as applied by SAFE
      in
      accordance with Notice 106, may result in fines and other penalties under PRC
      laws for evasion of applicable foreign exchange restrictions. Any such failure
      could also result in the SPV’s affiliates being impeded or prevented from
      distributing their profits and the proceeds from any reduction in capital,
      share
      transfer or liquidation to the SPV, or from engaging in other transfers of
      funds
      into or out of China.





43




We
      believe our stockholders who are PRC residents as defined in Circular 75 have
      registered with the relevant branch of SAFE, as currently required, in
      connection with their equity interests in us and our acquisitions of equity
      interests in our PRC subsidiaries. However, we cannot provide any assurances
      that their existing registrations have fully complied with, and they have made
      all necessary amendments to their registration to fully comply with, all
      applicable registrations or approvals required by Circular 75. Moreover, because
      of uncertainty over how Circular 75 will be interpreted and implemented, and
      how
      or whether SAFE will apply it to us, we cannot predict how it will affect our
      business operations or future strategies. For example, our present and
      prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
      such as the remittance of dividends and foreign currency-denominated borrowings,
      may be subject to compliance with Circular 75 by our PRC resident beneficial
      holders. In addition, such PRC residents may not always be able to complete
      the
      necessary registration procedures required by Circular 75. We also have little
      control over either our present or prospective direct or indirect stockholders
      or the outcome of such registration procedures. A failure by our PRC resident
      beneficial holders or future PRC resident stockholders to comply with Circular
      75, if SAFE requires it, could subject these PRC resident beneficial holders
      to
      fines or legal sanctions, restrict our overseas or cross-border investment
      activities, limit our subsidiaries’ ability to make distributions or pay
      dividends or affect our ownership structure, which could adversely affect our
      business and prospects.





44




***The
      value of our securities will be affected by the foreign exchange rate between
      U.S. dollars and Renminbi.***




The
      value
      of our common stock will be affected by the foreign exchange rate between U.S.
      dollars and Renminbi, and between those currencies and other currencies in
      which
      our sales may be denominated. For example, to the extent that we need to convert
      U.S. dollars into Renminbi for our operational needs and should the Renminbi
      appreciate against the U.S. dollar at that time, our financial position, the
      business of the Company, and the price of our common stock may be harmed.
      Conversely, if we decide to convert our Renminbi into U.S. dollars for the
      purpose of declaring dividends on our common stock or for other business
      purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar
      equivalent of our earnings from our subsidiaries in China would be
      reduced.





Our
      strategy to procure raw ingredients supply is to diversify our suppliers both
      in
      the PRC and overseas. Currently, some of our raw materials and major equipment
      are imported. In the event that the U.S. dollars appreciate against Renminbi,
      our costs will increase. If we cannot pass the resulting cost increase on to
      our
      customers, our profitability and operating results will suffer. In addition,
      since our sales to international customers grew rapidly, we are subject to
      the
      risk of foreign currency depreciation.





***Our
      licenses are subject to governmental control and renewal, failure to obtain
      renewal will cause all or part of our operations to be suspended or
      terminated.***




In
      accordance with PRC laws and regulations, we are required to maintain various
      licenses and permits in order to operate our business at each of our production
      facilities including, without limitation, hygiene permits, and industrial
      products production permits. We are required to comply with applicable hygiene
      and food safety standards in relation to our production processes. Our premises
      and transportation vehicles are subject to regular inspections by the regulatory
      authorities for compliance with the Detailed Rules for Administration and
      Supervision of Quality and Safety in Food Producing and Processing Enterprises.
      Failure to pass these inspections, or the loss of or failure to renew our
      licenses and permits, could require us to temporarily or permanently suspend
      some or all of our production activities, which could disrupt our operations
      and
      adversely affect our business.




**RISKS
      RELATED TO THE MARKET FOR OUR STOCK**




***Certain
      of our stockholders hold a significant percentage of our outstanding voting
      securities.***




Mr.
      Akazawa, is the record owner of approximately 65.43% of our outstanding voting
      securities. As a result, he possesses significant influence and can elect a
      majority of our board of directors and authorize or prevent proposed significant
      corporate transactions. His ownership and control may also have the effect
      of
      delaying or preventing a future change in control, impeding a merger,
      consolidation, takeover or other business combination or discourage a potential
      acquirer from making a tender offer.





45




***Our
      common stock is quoted on the OTC Bulletin Board which may have an unfavorable
      impact on our stock price and liquidity.***




Our
      common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is
      a
      significantly more limited market than the New York Stock Exchange or NASDAQ
      system. The quotation of our shares on the OTC Bulletin Board may result in
      a
      less liquid market available for existing and potential stockholders to trade
      shares of our common stock, could depress the trading price of our common stock
      and could have a long-term adverse impact on our ability to raise capital in
      the
      future.





***We
      are subject to penny stock regulations and
      restrictions.***




The
      SEC
      has adopted regulations which generally define so-called “penny stocks” to be an
      equity security that has a market price less than $5.00 per share or an exercise
      price of less than $5.00 per share, subject to certain exemptions. As of August
      17, 2007, the closing price for our common stock was $7.00 per share, but our
      recent trading history has also shown prices below $5.00 per share and,
      therefore, our stock could be designated a “penny stock.” As a “penny stock,”
our common stock may become subject to Rule 15g-9 under the Exchange Act of
      1934, or the “Penny Stock Rule.” This rule imposes additional sales practice
      requirements on broker-dealers that sell such securities to persons other than
      established customers and “accredited investors” (generally, individuals with a
      net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or
      $300,000 together with their spouses). For transactions covered by Rule 15g-9,
      a
      broker-dealer must make a special suitability determination for the purchaser
      and have received the purchaser’s written consent to the transaction prior to
      sale. As a result, this rule may affect the ability of broker-dealers to sell
      our securities and may affect the ability of purchasers to sell any of our
      securities in the secondary market.




For
      any
      transaction involving a penny stock, unless exempt, the rules require delivery,
      prior to any transaction in a penny stock, of a disclosure schedule prepared
      by
      the SEC relating to the penny stock market. Disclosure is also required to
      be
      made about sales commissions payable to both the broker-dealer and the
      registered representative and current quotations for the securities. Finally,
      monthly statements are required to be sent disclosing recent price information
      for the penny stock held in the account and information on the limited market
      in
      penny stock.




There
      can
      be no assurance that our common stock will qualify for exemption from the Penny
      Stock Rule. In any event, even if our common stock were exempt from the Penny
      Stock Rule, we would remain subject to Section 15(b)(6) of the Securities
      Exchange Act of 1934, or “Exchange Act”, which gives the SEC the authority to
      restrict any person from participating in a distribution of penny stock, if
      the
      SEC finds that such a restriction would be in the public interest.





46




***Certain
      provisions of our Certificate of Incorporation may make it more difficult for
      a
      third party to effect a change- in-control.***




Our
      Certificate of Incorporation authorizes our board of directors to issue up
      to
      5,000,000 shares of preferred stock without stockholder approval. The preferred
      stock may be issued in one or more series, the terms of which may be determined
      at the time of issuance by the board of directors without further action by
      the
      stockholders. These terms may include voting rights including the right to
      vote
      as a series on particular matters, preferences as to dividends and liquidation,
      conversion rights and redemption rights provisions. The issuance of any
      preferred stock could diminish the rights of holders of our common stock, and
      therefore could reduce the value of such common stock. In addition, specific
      rights granted to future holders of preferred stock could be used to restrict
      our ability to merge with, or sell assets to, a third party. The ability of
      the
      board of directors to issue preferred stock could make it more difficult, delay,
      discourage, prevent or make it more costly to acquire or effect a
      change-in-control, which in turn could prevent the stockholders from recognizing
      a gain in the event that a favorable offer is extended and could materially
      and
      negatively affect the market price of our common stock.





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





On
      May 3,
      2007, through a private placement, we raised approximately $19.8 million in
      gross proceeds, which left us with approximately $18 million in net proceeds
      after the deduction of offering expenses in the amount of approximately $1.8
      million. We plan to use part of the proceeds to build new production lines
      and
      purchase new equipment for the expansion of our production capacity. This
      financing resulted in an increase of our net cash flow and a decrease of our
      asset/liability ratio and financial risks.





Through
      the reverse acquisition 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 shares of preferred stock were convertible into
      16,384,706 shares of our common stock immediately following the effectiveness
      of
      an amendment to our charter filed July 17, 2007 that, among other things,
      increases the number of our authorized shares of common stock from 20,000,000
      to
      200,000,000 and effectuated a 1-for-32.84 reverse stock split.





Contemporaneous
      with the reverse acquisition, we also completed a private placement transaction
      in which we issued and sold to accredited investors 299,055.78 shares of our
      Series B Voting Convertible Preferred Stock and warrants for the purchase of
      up
      to an aggregate of 1,398,065 shares of our Common 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 at
      the
      effective time of an amendment and restatement of our Restated Certificate
      of
      Incorporation filed on July 17, 2007.





47




Details
      of unregistered sale of common securities can be found in the Company’s Current
      Report filed on Form 8-K, dated May 3, 2007 filed by the SEC on May 9, 2007,
      which is incorporated into this Quartely report by reference.





**ITEM
      3.  DEFAULTS UPON SENIOR SECURITIES**





There
      were no defaults upon senior securities in the quarter ended June 30,
      2007.





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





On
      May 3,
      2007, the board of directors of Millennium Quest, Inc, a Delaware corporation
      (the “Company”) and Halter Financial Investments, L.P., the record holder 70.5%
      of the Company’s issued and outstanding common stock, approved, by written
      consent, an amendment of the Company’s Articles of Incorporation (the
“Amendment”) that (i) will increase the number of shares of our authorized
      common stock from 20,000,000 to 200,000,000 shares, (ii) effectuate a
      1-for-32.84 reverse stock split for our common stock and (iii) to change the
      Company’s name to “American Lorain Corporation”.





**ITEM
      5. OTHER INFORMATION**




N/A





**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.
              Certification
                  of Principal Executive Officer and Financial Officer furnished
                  pursuant to
                  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.




48





**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 hereunto
      duly authorized.




**AMERICAN
                LORAIN CORPORATION**Date:
                August 20, 2007By:
              /S/ Si
              ChenSi
                Chen
              Chief
                Executive Officer




49




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.
              Certification
                  of Principal Executive Officer and Financial Officer furnished
                  pursuant to
                  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.


50