---

UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, 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, 2010

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

Commission File No. 001-34449

AMERICAN LORAIN CORPORATION(Exact name of
registrant as specified in its charter)

|Nevada                          | 87-0430320         
|------------------------------- | -------------------
|                                |                    
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

Beihuan Road Junan CountyShandong, China
276600(Address, including zip code, of principal executive
offices)

(86) 539-7318818(Registrants telephone
number, including area code)

Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.   Yes
[X]    No [  ]

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

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

|Large accelerated filer [  ] | Accelerated filer [  ] | Non-accelerated filer [  ] | Smaller reporting company [X]
|---------------------------- | ---------------------- | -------------------------- | -----------------------------

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

The numbers of shares outstanding of the issuers class of
common stock as of June 30, 2010 was 26,750,592.

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Table of Contents

|           |                                                                                             | Page
|---------- | ------------------------------------------------------------------------------------------- | ----
|           | Part I - Financial
      Information                                                        |     
|Item 1     | Financial Statements and Accountants
      Report                                          | 1   
|Item 2     | Managements Discussion and
      Analysis of Financial Condition and Results of Operations | 24  
|Item 3     | Quantitative and Qualitative Disclosures
      about Market Risk                            | 35  
|Item 4     | Controls and Procedures                                                                     | 35  
|           |                                                                                             |     
|           | Part II - Other
      Information                                                           |     
|Item 1     | Legal Proceedings                                                                           | 36  
|Item 1A    | Risk Factors                                                                                | 36  
|Item 2     | Unregistered Sales of Equity Securities
      and Use of Proceeds                           | 36  
|Item 3     | Defaults Upon Senior
      Securities                                                       | 36  
|Item 4     | Removed and Reserved                                                                        | 36  
|Item 5     | Other Information                                                                           | 36  
|Item 6     | Exhibits                                                                                    | 36  
|Signatures |                                                                                             | 37  

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND ACCOUNTANTS REPORT

AMERICAN LORAIN CORPORATION



|CONTENTS                                                      | PAGES      
|------------------------------------------------------------- | -----------
|                                                              |            
|REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 1          
|                                                              |            
|CONSOLIDATED
      BALANCE SHEETS                             | 2
       3
|                                                              |            
|CONSOLIDATED
      STATEMENTS OF INCOME                       | 4          
|                                                              |            
|CONSOLIDATED
      STATEMENTS OF CASH FLOWS                   | 5          
|                                                              |            
|CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS EQUITY         | 6          
|                                                              |            
|NOTES
      TO FINANCIAL STATEMENTS                           | 7  23     



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REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM



|To: | The Board of Directors and
      Stockholders of
|--- | ------------------------------------------------
|    | American Lorain Corporation                     

We have reviewed the accompanying interim consolidated balance
sheets of American Lorain Corporation (the Company) as of June 30, 2010 and
December 31, 2009, and the related statements of income, stockholders equity,
and cash flows for the three-month and six-month periods ended June 30, 2010 and
2009. These interim consolidated financial statements are the responsibility of
the Company's management.

We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material
modifications that should be made to the accompanying interim consolidated
financial statements for them to be in conformity with U.S. generally accepted
accounting principles.





|San Mateo, California | Samuel H. Wong & Co., LLP   
|--------------------- | ----------------------------
|July 24, 2010         | Certified Public Accountants

1

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AMERICAN LORAIN CORPORATIONCONSOLIDATED BALANCE
SHEETSAT JUNE 30, 2010 AND DECEMBER 31, 2009(Stated in US Dollars)

|                                           |  | Note |  |   | At June 30, |  |   | At December 31, | 
|------------------------------------------ |  | ---- |  | - | ----------- |  | - | --------------- | 
|ASSETS                                     |  |      |  |   | 2010        |  |   | 2009            | 
|Current Assets                             |  |      |  |   |             |  |   |                 | 
|Cash and cash
      equivalents            |  |      |  | $ | 10,338,791  |  | $ | 12,111,532      | 
|Restricted cash                            |  | 3    |  |   | 741,442     |  |   | 1,299,889       | 
|Short-term investment                      |  |      |  |   | 9,413,040   |  |   | 7,320,248       | 
|Trade accounts receivable                  |  | 4    |  |   | 17,509,252  |  |   | 23,025,772      | 
|Other receivables                          |  | 5    |  |   | 5,165,035   |  |   | 7,837,675       | 
|Related party receivable                   |  | 6    |  |   | 167,484     |  |   | 603,116         | 
|Inventory                                  |  | 7    |  |   | 34,075,760  |  |   | 26,400,117      | 
|Advance to suppliers                       |  |      |  |   | 15,153,714  |  |   | 16,938,872      | 
|Prepaid expenses
      and taxes           |  |      |  |   | 171,173     |  |   | 905,266         | 
|Deferred
      tax asset                   |  |      |  |   | 200,072     |  |   | 199,867         | 
|Total current assets                       |  |      |  | $ | 92,935,763  |  | $ | 96,642,354      | 
|                                           |  |      |  |   |             |  |   |                 | 
|Property, plant and
      equipment, net   |  | 8    |  |   | 50,638,174  |  |   | 41,280,407      | 
|Land use
      rights, net                 |  | 9    |  |   | 3,835,691   |  |   | 3,871,547       | 
|Deposit                                    |  |      |  |   | 16,154      |  |   | 16,088          | 
|TOTAL ASSETS                               |  |      |  | $ | 147,425,782 |  | $ | 141,810,396     | 
|                                           |  |      |  |   |             |  |   |                 | 
|LIABILITIES AND
      STOCKHOLDERS EQUITY |  |      |  |   |             |  |   |                 | 
|Current liabilities                        |  |      |  |   |             |  |   |                 | 
|Short-term bank loans                      |  | 10   |  | $ | 37,750,096  |  | $ | 35,488,212      | 
|Long-term Debt 
      Current Portion     |  | 13   |  |   | 309,910     |  |   | -               | 
|Accounts payable                           |  |      |  |   | 2,209,103   |  |   | 2,614,515       | 
|Taxes payable                              |  | 11   |  |   | 1,197,417   |  |   | 2,235,341       | 
|Accrued liabilities and other payables     |  | 12   |  |   | 4,571,902   |  |   | 6,422,492       | 
|Deferred tax
      liabilities             |  |      |  |   | 2,899       |  |   | -               | 
|Customers deposits                         |  |      |  |   | 1,354,956   |  |   | 13,842          | 
|Total Current Liabilities                  |  |      |  | $ | 47,396,283  |  | $ | 46,774,402      | 
|                                           |  |      |  |   |             |  |   |                 | 
|Long Term Liabilities                      |  |      |  |   |             |  |   |                 | 
|Long term bank loans                       |  | 13   |  |   | 12,851      |  |   | 294,873         | 
|                                           |  |      |  |   |             |  |   |                 | 
|TOTAL LIABILITIES                          |  |      |  | $ | 47,409,134  |  | $ | 47,069,275      | 

See Accompanying Notes to the Financial Statements and
Accountants Report 2

---

AMERICAN LORAIN CORPORATIONCONSOLIDATED BALANCE
SHEETSAT JUNE 30, 2010 AND DECEMBER 31, 2009(Stated in US Dollars)

|                                                                                                                                                                                                                                  |  |      |  |   | At June 30, |  |   | At December 31, | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- |  | - | ----------- |  | - | --------------- | 
|                                                                                                                                                                                                                                  |  | Note |  |   |             |  |   |                 | 
|                                                                                                                                                                                                                                  |  |      |  |   | 2010        |  |   | 2009            | 
|                                                                                                                                                                                                                                  |  |      |  |   |             |  |   |                 | 
|                                                                                                                                                                                                                                  |  |      |  |   |             |  |   |                 | 
|STOCKHOLDERS EQUITY                                                                                                                                                                                                              |  |      |  |   |             |  |   |                 | 
|Preferred Stock, $.001 par value, 5,000,000
      shares        authorized; 0
      shares issued and outstanding at
      June        30, 2010 and
      December 31, 2009                                                       |  |      |  |   | -           |  |   | -               | 
|Common stock, $0.001 par value, 200,000,000
      shares        authorized;
      30,240,202 and 30,240,202 shares issued
      and        outstanding as of
      June 30, 2010 and December 31,
      2009,        respectively |  | 15   |  |   | 30,240      |  |   | 30,240          | 
|Additional paid-in capital                                                                                                                                                                                                        |  |      |  |   | 35,723,552  |  |   | 35,268,603      | 
|Statutory reserves                                                                                                                                                                                                                |  |      |  |   | 8,895,477   |  |   | 8,895,477       | 
|Retained earnings                                                                                                                                                                                                                 |  |      |  |   | 42,995,493  |  |   | 38,455,349      | 
|Accumulated other comprehensive
      income                                                                                                                                                                                      |  |      |  |   | 5,998,789   |  |   | 6,068,569       | 
|Non-controlling interests                                                                                                                                                                                                         |  | 14   |  |   | 6,373,097   |  |   | 6,022,883       | 
|                                                                                                                                                                                                                                  |  |      |  |   |             |  |   |                 | 
|                                                                                                                                                                                                                                  |  |      |  | $ | 100,016,648 |  | $ | 94,741,121      | 
|                                                                                                                                                                                                                                  |  |      |  |   |             |  |   |                 | 
|                                                                                                                                                                                                                                  |  |      |  |   |             |  |   |                 | 
|TOTAL LIABILITIES AND
      STOCKHOLDERS EQUITY                                                                                                                                                                                  |  |      |  | $ | 147,425,782 |  | $ | 141,810,396     | 

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

3

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AMERICAN LORAIN CORPORATIONCONSOLIDATED
STATEMENTS OF INCOMEFOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010
AND 2009(Stated in US Dollars)

Three months ended June 30,
      
      
      Six months ended June 30,Note
      
      
      2010
      
      
      2009
      
      
      2010
      
      
      2009Net revenues
      
      17
      
      $
      29,218,314
      
      $
      23,965,924
      
      $
      53,778,530
      
      $
      45,166,461Cost of revenues
      
      
      
      
      (22,499,645
      )
      
      (18,675,167
      )
      
      (41,335,771
      )
      
      (34,713,370
      )Gross profit
      
      
      
      $
      6,718,669
      
      $
      5,290,757
      
      $
      12,442,759
      
      $
      10,453,091Operating expensesSelling and marketing expenses
      
      
      
      
      (1,194,996
      )
      
      (1,220,317
      )
      
      (2,567,348
      )
      
      (2,391,164
      )General and administrative expenses
      
      
      
      
      (932,210
      )
      
      (914,892
      )
      
      (1,948,662
      )
      
      (1,891,197
      )Operating income
      
      
      
      $
      4,591,463
      
      $
      3,155,548
      
      $
      7,926,749
      
      $
      6,170,730Investment income
      
      
      
      
      589
      
      
      -
      
      
      589
      
      
      -Government subsidy income
      
      
      
      
      196,003
      
      
      97,663
      
      
      377,424
      
      
      196,252Interest and other income
      
      
      
      
      8,901
      
      
      127,279
      
      
      130,982
      
      
      208,648Other expenses
      
      
      
      
      (44,714
      )
      
      (69,286
      )
      
      (72,237
      )
      
      (181,603
      )Interest expense
      
      
      
      
      (1,023,129
      )
      
      (744,825
      )
      
      (1,943,553
      )
      
      (1,348,651
      )Earnings before tax
      
      
      
      $
      3,729,113
      
      $
      2,566,379
      
      $
      6,419,954
      
      $
      5,045,376Income tax
      
      2(r),16
      
      
      (857,604
      )
      
      (602,706
      )
      
      (1,529,596
      )
      
      (1,183,478
      )Net income
      
      
      
      $
      2,871,509
      
      $
      1,963,673
      
      $
      4,890,358
      
      $
      3,861,898Net income attributable to:-Common Stockholders
      
      
      
      $
      2,679,613
      
      $
      1,855,628
      
      $
      4,540,144
      
      $
      3,611,704-Non-controlling Interest
      
      
      
      
      191,896
      
      
      108,045
      
      
      350,214
      
      
      250,194$
      2,871,509
      
      $
      1,963,673
      
      $
      4,890,358
      
      $
      3,861,898Earnings per share
      
      2(v)- Basic
      
      
      
      $
      0.10
      
      $
      0.07
      
      $
      0.17
      
      $
      0.14- Diluted
      
      
      
      $
      0.10
      
      $
      0.07
      
      $
      0.17
      
      $
      0.14Weighted average shares outstanding- Basic
      
      
      
      
      26,075,413
      
      
      25,177,640
      
      
      26,075,413
      
      
      25,177,640- Diluted
      
      
      
      
      26,750,592
      
      
      25,177,640
      
      
      26,750,592
      
      
      25,177,640


See Accompanying Notes to the Financial Statements and
Accountants Report 4

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AMERICAN LORAIN CORPORATIONCONSOLIDATED
STATEMENTS OF CASH FLOWFOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2010 AND 2009(Stated in US Dollars)

|                                                                    |   | Three months ended June 30, |   |   | Six months ended June 30, |  
|------------------------------------------------------------------- | - | --------------------------- | - | - | ------------------------- | -
|                                                                    |   | 2010                        |   |   | 2009                      |  
|Cash flows from operating activities                                |   |                             |   |   |                           |  
|Net income                                                          | $ | 2,871,509                   |   | $ | 1,963,673                 |  
|Stock and share based compensation                                  |   | 205,943                     |   |   | -                         |  
|Depreciation                                                        |   | 322,416                     |   |   | 331,026                   |  
|Amortization                                                        |   | 33,341                      |   |   | 91,615                    |  
|(Increase)/decrease in
      accounts & other receivables           |   | 4,205,909                   |   |   | (6,927,729                | )
|(Increase)/decrease in inventories                                  |   | 1,798,055                   |   |   | 832,815                   |  
|Decrease/(increase) in prepayment                                   |   | 972,209                     |   |   | 1,002,431                 |  
|Increase/(decrease) in accounts and other
      payables            |   | (1,648,161                  | ) |   | (7,086,166                | )
|Net cash (used in)/provided
      by operating activities           |   | 8,761,221                   |   |   | (9,792,335                | )
|                                                                    |   |                             |   |   |                           |  
|Cash flows from investing activities                                |   |                             |   |   |                           |  
|Sales (investment) in short term investment fund                    |   | -                           |   |   | (13                       | )
|(Increase)/decrease in restricted
      cash                        |   | 376,613                     |   |   | -                         |  
|Payment of land use rights                                          |   | (18,318                     | ) |   | (98,320                   | )
|Payments for purchase of equipment &
      plant                    |   | (9,618,218                  | ) |   | (383,364                  | )
|Decrease (increase) in deposit                                      |   | -                           |   |   | 213,860                   |  
|Net cash used in investing activities                               |   | (9,259,923                  | ) |   | (267,837                  | )
|Cash flows from financing activities                                |   |                             |   |   |                           |  
|Bank borrowings                                                     |   | 5,297,856                   |   |   | 2,886,255                 |  
|Repayment of bank loans                                             |   | (2,900,729                  | ) |   | -                         |  
|Notes payable                                                       |   | -                           |   |   | 1,614,365                 |  
|Issue of common stock                                               |   | -                           |   |   | 6,147                     |  
|Net cash provided by/(used in) financing
      activities           | $ | 2,397,127                   |   | $ | 4,506,767                 |  
|                                                                    |   |                             |   |   |                           |  
|Net Increase/(decrease) of Cash and Cash Equivalents                |   | 1,898,425                   |   |   | (5,553,405                | )
|Effect of foreign currency translation on cash and cash equivalents |   | (89,298                     | ) |   | 141,404                   |  
|                                                                    |   |                             |   |   |                           |  
|Cash and cash equivalentsbeginning of year                         |   | 8,529,664                   |   |   | 12,243,722                |  
|Cash and cash equivalentsend of year                               | $ | 10,338,791                  |   | $ | 6,831,721                 |  



|                                     |   | Three months ended June 30, |  |   | Six months ended June 30, | 
|------------------------------------ | - | --------------------------- |  | - | ------------------------- | 
|                                     |   | 2010                        |  |   | 2009                      | 
|Supplementary cash flow information: |   |                             |  |   |                           | 
|Interest
      received              | $ | 3,998                       |  | $ | 1,620                     | 
|Interest paid                        | $ | 1,018,530                   |  | $ | 744,825                   | 
|Income taxes
      paid              | $ | 649,208                     |  | $ | 602,706                   | 

See Accompanying Notes to the Financial Statements and
Accountants Report 5

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AMERICAN LORAIN CORPORATIONSTATEMENT OF STOCKHOLDERS EQUITYFOR THE YEARS ENDED JUNE 30, 2010 AND DECEMBER
31, 2009(STATED IN US DOLLARS)

|                                        |  |            |  |   |        |  |   |            |   |   |           |  |   |            |   |   | Accumulated   |   |   |             |  |   |             |  
|--------------------------------------- |  | ---------- |  | - | ------ |  | - | ---------- | - | - | --------- |  | - | ---------- | - | - | ------------- | - | - | ----------- |  | - | ----------- | -
|                                        |  | Number     |  |   |        |  |   | Additional |   |   |           |  |   |            |   |   | Other         |   |   | Non-        |  |   |             |  
|                                        |  | of         |  |   | Common |  |   | Paid-in    |   |   | Statutory |  |   | Retained   |   |   | Comprehensive |   |   | controlling |  |   |             |  
|                                        |  | Shares     |  |   | Stock  |  |   | Capital    |   |   | Reserves  |  |   | Earnings   |   |   | Income        |   |   | Interests   |  |   | Total       |  
|Balance, January 1, 2009                |  | 25,172,640 |  | $ | 25,172 |  | $ | 24,187,019 |   | $ | 5,438,723 |  | $ | 27,503,991 |   | $ | 5 ,178,616    |   | $ | 5,122,021   |  | $ | 67,455,542  |  
|Issuance of share based compensation    |  | 56,393     |  |   | 57     |  |   | 166,341    |   |   | -         |  |   | -          |   |   | -             |   |   | -           |  |   | 166,398     |  
|Issuance of common stock for cash       |  | 5,011,169  |  |   | 5,011  |  |   | 12,002,150 |   |   | -         |  |   | -          |   |   | -             |   |   | -           |  |   | 12,007,161  |  
|Issuance cost of common stock           |  |            |  |   |        |  |   | (1,086,907 | ) |   | -         |  |   | -          |   |   | -             |   |   | -           |  |   | (1,086,907  | )
|Net income                              |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | 15,308,974 |   |   | -             |   |   | -           |  |   | 15,308,974  |  
|Appropriations to statutory reserves    |  | -          |  |   | -      |  |   | -          |   |   | 3,456,754 |  |   | (3,456,754 | ) |   | -             |   |   | -           |  |   | -           |  
|Allocation to non-controlling interests |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | (900,862   | ) |   | -             |   |   | 900,862     |  |   | -           |  
|Foreign currency translation adjustment |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | -          |   |   | 889,953       |   |   | -           |  |   | 889,953     |  
|Balance, December 31, 2009              |  | 30,240,202 |  | $ | 30,240 |  | $ | 35,268,603 |   | $ | 8,895,477 |  | $ | 38,455,349 |   | $ | 6,068,569     |   | $ | 6,022,883   |  | $ | 94,741,121  |  
|                                        |  |            |  |   |        |  |   |            |   |   |           |  |   |            |   |   |               |   |   |             |  |   |             |  
|Balance, January 1, 2010                |  | 30,240,202 |  | $ | 30,240 |  | $ | 35,268,603 |   | $ | 8,895,477 |  | $ | 38,455,349 |   | $ | 6,068,569     |   | $ | 6,022,883   |  | $ | 94,741,121  |  
|Issuance of share based compensation    |  | -          |  |   | -      |  |   | 454,949    |   |   | -         |  |   | -          |   |   | -             |   |   | -           |  |   | 454,949     |  
|Issuance of common stock for cash       |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | -          |   |   | -             |   |   | -           |  |   | -           |  
|Issuance cost of common stock           |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | -          |   |   | -             |   |   | -           |  |   | -           |  
|Net income                              |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | 4,890,358  |   |   | -             |   |   | -           |  |   | 4,890,358   |  
|Appropriations to statutory reserves    |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | -          |   |   | -             |   |   | -           |  |   | -           |  
|Allocation to non-controlling interests |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | (350,214   | ) |   | -             |   |   | 350,214     |  |   | -           |  
|Unrealized gain (loss) on investment    |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | -          |   |   | (489,665      | ) |   | -           |  |   | (489,665    | )
|Foreign currency translation adjustment |  | -          |  |   | -      |  |   | -          |   |   | -         |  |   | -          |   |   | 419,885       |   |   | -           |  |   | 419,885     |  
|Balance, June 30, 2010                  |  | 30,240,202 |  | $ | 30,240 |  | $ | 35,723,552 |   | $ | 8,895,477 |  | $ | 42,995,493 |   | $ | 5,998,789     |   | $ | 6,373,097   |  | $ | 100,016,648 |  

See Accompanying Notes to the Financial Statements and
Accountants Report6

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS  JUNE 30, 2010 AND 2009(Stated in US Dollars)

|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
      opportunities to become an acquiree (for accounting purposes) in a
      reverse-merger transaction.                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (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 until May 3, 2007
      wholly-owned by Mr. Hisashi Akazawa. Through restructuring and acquisition
      in 2006, the Company presently has two direct wholly-owned subsidiaries,
      Junan Hongrun and Luotian Lorain, and one indirectly wholly-owned
      subsidiary through Junan Hongrun, which is Beijing Lorain.                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | In addition, the Company directly and indirectly has
      80.2% ownership of Shandong Lorain. The rest of the 19.8%, which is owned
      by the State under the name of Shandong Economic Development Investment
      Co. Ltd., is not included as a part of the Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | On April 9, 2009, the Company, through its Junan Hongrun
      subsidiary, invested cash to establish Dongguan Lorain. Dongguan Lorain is
      indirectly 100% beneficially owned by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (c) | Reverse-Merger                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | On May 3, 2007, the Company entered into a share exchange
      agreement with ILH whereby the Company consummated its acquisition of ILH
      by issuance of 697,663 Series B voting convertible preferred shares to the
      shareholders of ILH in exchange of 5,099,503 ILH shares. Concurrently on
      May 3, 2007, the Company also entered into a securities purchase agreement
      with certain investors and Mr. Hisashi Akazawa and Mr. Si Chen (each a
      beneficial owner) whereby the Company issued 319,913 common shares
      (after effecting a reverse- split of its shares at the rate of 32.84
      post-split shares for 10,508,643 pre-split shares) to its shareholders as
      consideration of the Companys reverse-merger with Lorain.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The share exchange transaction is referred to hereafter
      as the reverse-merger transaction. The share exchange transaction has
      been accounted for as a recapitalization of ALC where the Company (the
      legal acquirer) is considered the accounting acquiree and ILH (the
      acquiree) is considered the accounting acquirer. As a result of this
      transaction, the Company is deemed to be a continuation of the business of
      ILH.                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Accordingly, the accompanying consolidated financial
      statements are those of the accounting acquirer, ILH. The historical
      stockholders equity of the accounting acquirer prior to the share
      exchange has been retroactively restated as if the share exchange
      transaction occurred as of the beginning of the first period presented.
      See also Note 15 Capitalization.                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (d) | Business Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company develops, manufactures, and sells convenience
      foods (includes ready-to-cook (or RTC) foods; ready-to-eat (or RTE) foods
      and meals ready-to-eat (or MRE); chestnut products; and frozen foods, in
      hundreds of varieties. The Company operates through indirect Chinese
      subsidiaries. The products are sold in 26 provinces and administrative
      regions in China and 42 foreign countries. Food products are categorized
      into three types: (1) chestnut products, (2) convenience food, and (3)
      frozen food.                                                                                                                                                                                                               

7

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES
|-- | --------------------------------------------



| | (a) | Method of Accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The Company maintains its general ledger and journals on
      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 the financial statements,
      which are compiled on the accrual basis of accounting.                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The Company reclassified certain accounts in its
      presentation of changes in assets and liabilities in the statement of cash
      flows for the year ended December 31, 2009 in order to be consistent with
      the presentation provided for the year ended December 31, 2009. There was
      no impact in earnings for the reclassification.                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (b) | Principles of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The consolidated financial statements which include the
      Company and its subsidiaries are compiled in accordance with generally
      accepted accounting principles in the United States of America. All
      significant inter-company accounts and transactions have been eliminated.
      The consolidated financial statements include 100% of assets, liabilities,
      and net income or loss of those wholly-owned subsidiaries; ownership
      interests of minority investors are recorded as minority
  interests.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | As of June 30, 2010, the detailed identities of the
      consolidating subsidiaries are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                  



Name of Company
    
    Place of
      incorporation
    
    
    Attributable
      equity interest %
    
    
    Registered
      capitalShandong Lorain Co., Ltd
    
    PRC
    
    
    80.2
    
    $
    14,813,618Luotian Lorain Co., Ltd
    
    PRC
    
    
    100
    
    $
    3,720,119Junan Hongrun Foodstuff Co.,
      Ltd
    
    PRC
    
    
    100
    
    $
    28,816,497Beijing Lorain Co., Ltd
    
    PRC
    
    
    100
    
    $
    1,468,731Dongguan Lorain Co,,Ltd
    
    PRC
    
    
    100
    
    $
    146,873International Lorain Holding Inc.
    
    Cayman Islands
    
    
    100
    
    $
    37,285,063




| | (c) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The preparation of the financial statements in conformity
      with generally accepted accounting principles in the United States of
      America requires management to make estimates and assumptions that affect
      the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements
      and the reported amounts of revenues and expenses during the reporting
      periods. Management makes these estimates using the best information
      available at the time the estimates are made; however actual results could
      differ materially from those estimates
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (d) | Economic and political 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                                                                                                                                                                                  

8

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

| |       | governmental policies with respect to laws and
      regulations, anti-inflationary measures, currency conversion, remittances
      abroad, and rates and methods of taxation, among other things.                                                   
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                       
| | *(e)* | Lease prepayments                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                       
| |       | Lease prepayments represent the cost of land use rights
      in the PRC. Land use rights are carried at cost and amortized on a
      straight-line basis over the period of rights of 50 years.                                                     
| |       |                                                                                                                                                                                                                                                       
| | *(f)* | Property, plant and 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




| |     | 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.                                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (g) | Accounting for the Impairment of Long-Lived
      Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The long-lived assets held and used by the Company are
      reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of assets may not be recoverable. It is
      reasonably possible that these assets could become impaired as a result of
      technology or other industry changes. Determination of recoverability of
      assets to be held and used is by comparing the carrying amount of an asset
      to future net undiscounted cash flows to be generated by the
  assets.                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | If such assets are considered to be impaired, the
      impairment to be recognized is measured by the amount by which the
      carrying amount of the assets exceeds the fair value of the assets. Assets
      to be disposed of are reported at the lower of the carrying amount or fair
      value less costs to sell. During the reporting years, there was no
      impairment loss.                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (h) | Construction in progress                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Construction in progress represents direct costs of
      construction or acquisition and design fees incurred. Capitalization of
      these costs ceases and the construction in progress is transferred to
      plant and equipment when substantially all the activities necessary to
      prepare the assets for their intended use are completed. No depreciation
      is provided until it is completed and ready for intended use.                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (i) | Investment securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company classifies its equity securities into trading
      or available-for-sale. Trading securities are bought and held principally
      for the purpose of selling them in the near term. All securities not
      included in trading securities are classified as
  available-for-sale.                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Trading and available-for-sale securities are recorded at
      fair value. Unrealized holding gains and losses on trading securities are
      included in the net income. Unrealized holding gains and losses, net of
      the related tax effect, on available for sale securities are excluded from
      net income and are reported as a separate component of other comprehensive
      income until realized. Realized gains and losses from the sale of
      available-for-sale securities are determined on a specific-identification
      basis.

9

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

| |     | A decline in the market value of any available-for-sale
      security below cost that is deemed to be other-than- temporary results in
      a reduction in carrying amount to fair value. The impairment is charged as
      an expense to the statement of income and comprehensive income and a new
      cost basis for the security is established. To determine whether
      impairment is other-than-temporary, the Company considers whether it has
      the ability and intent to hold the investment until a market price
      recovery and considers whether evidence indicating the cost of the
      investment is recoverable outweighs evidence to the contrary. Evidence
      considered in this assessment includes the reasons for the impairment, the
      severity and duration of the impairment, changes in value subsequent to
      year end, and forecasted performance of the investee.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Premiums and discounts are amortized or accreted over the
      life of the related available-for-sale security as an adjustment to yield
      using the effective-interest method. Dividend and interest income are
      recognized when earned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (j) | *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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (k) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (l) | *Customer deposits*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Customer deposits were received from customers in
      connection with orders of products to be delivered in future
    periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (m) | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The Company considers all highly liquid investments
      purchased with original maturities of three months or less to be cash
      equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (n) | Advertising                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | All advertising costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (o) | Shipping and handling                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | All shipping and handling are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (p) | Research and development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | All research and development costs are expensed as
      incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (q) | Retirement benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Retirement benefits in the form of contributions under
      defined contribution retirement plans to the relevant authorities are
      charged to the consolidated statement of income as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (r) | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

10

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

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.

The Company has implemented Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Income tax liabilities computed according to the United States and Peoples
Republic of China (PRC) tax laws are provided for the tax effects of
transactions reported in the financial statements and consists of taxes
currently due plus deferred taxes related primarily to differences between the
basis of fixed assets and intangible assets for financial and tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will be either taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes also are recognized for
operating losses that are available to offset future income taxes. A valuation
allowance is created to evaluate deferred tax assets if it is more likely than
not that these items will either expire before the Company is able to realize
that tax benefit, or that future realization is uncertain.

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

The Company is subject to United
States tax according to Internal Revenue Code Sections 951 and 957. Corporate
income tax is imposed on progressive rates in the range of:

Taxable IncomeRate
      Over
      But Not Over
      Of Amount Over15%
      0
      50,000
      025%
      50,000
      75,000
      50,00034%
      75,000
      100,000
      75,00039%
      100,000
      335,000
      100,00034%
      335,000
      10,000,000
      335,00035%
      10,000,000
      15,000,000
      10,000,00038%
      15,000,000
      18,333,333
      15,000,00035%
      18,333,333
      -
      -




| | *(s)* | Statutory reserves                                                                                                                                                                                                                                             
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                
| |       | Statutory reserves refer to the amount appropriated from
      the net income in accordance with laws or regulations, which can be used
      to recover losses and increase capital, as approved, and are to be used to
      expand production or operations.



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



|                                                       | 6/30/2010 |  | 3/31/2010 |  | 12/31/2009 |  | 6/30/2009 |  | 3/31/2009
|------------------------------------------------------ | --------- |  | --------- |  | ---------- |  | --------- |  | ---------
|Year/quarter end RMB : US$
      exchange rate         | 6.8086    |  | 6.8361    |  | 6.8372     |  | 6.8448    |  | 6,8456   
|Average yearly/quarterly RMB : US$ exchange
      rate | 6.8348    |  | 6.8360    |  | 6.8408     |  | 6.8432    |  | 6.8466   

11

---

AMERICAN LORAIN CORPORATION NOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009 (STATED IN US DOLLARS)

| |     | 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 Dollar at the rates used in
      translation.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                               
| | (u) | Revenue recognition                                                                                                                                                                                                                                                                                           

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

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

| | (v) | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Basic earnings per share is computed by dividing net
      income by the weighted average number of ordinary shares outstanding
      during the period. Diluted earnings per share is computed by dividing net
      income by the sum of the weighted average number of ordinary shares
      outstanding and dilutive potential ordinary shares during the years.
      During the period ended June 30, 2010 and the year ended December 31,
      2009, no dilutive potential ordinary shares were issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company computes earnings per share (EPS) in
      accordance with Statement of Financial Accounting Standards No. 128,
      Earnings per share (SFAS No. 128), and SEC Staff Accounting Bulletin
      No. 98 (SAB 98). SFAS No. 128 requires companies with complex capital
      structures to present basic and diluted EPS. Basic EPS is measured as the
      income or loss available to common shareholders divided by the weighted
      average common shares outstanding for the period. Diluted EPS is similar
      to basic EPS but presents the dilutive effect on a per share basis of
      potential common shares (e.g., convertible securities, options, and
      warrants) as if they had been converted at the beginning of the periods
      presented, or issuance date, if later. Potential common shares that have
      an anti-dilutive effect (i.e., those that increase income per share or
      decrease loss per share) are excluded from the calculation of diluted
      EPS.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (w) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The Companys financial instruments are cash and cash
      equivalents, accounts receivable, other receivable, advances to suppliers,
      advances to employees, bank loans and notes, accounts payable, other
      payable, dividend payable, accrued liabilities, and long-term liabilities.
      The recorded values of cash and cash equivalents, accounts receivable,
      other receivable, advances to suppliers, advances to employees, bank loans
      and notes, accounts payable, other payable, dividend payable and accrued
      liabilities approximate their fair values based on their short-term
      nature. The recorded values of long-term liabilities approximate their
      fair values, as interest approximates market rates.                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (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) | 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

12

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

| |     | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (z) | Recent accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In June 2009, FASB issued FASB Statement No. 166,
      Accounting for Transfers for Financial Assets (FASB ASC 860 Transfers and
      Servicing) and FASB Statement No. 167 (FASB ASC 810 Consolidation), a
      revision to FASB Interpretation No. 46 (Revised December 2003),
      Consolidation of Variable Interest Entities (FASB ASC 810 Consolidation).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Statement 166 is a revision to FASB Statement No. 140,
      Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities (FASB ASC 860 Transfers and Servicing), and
      will require more information about transfers of financial assets,
      including securitization transactions, and where entities have continuing
      exposure to the risks related to transferred financial assets. It
      eliminates the concept of a qualifying special-purpose entity, changes
      the requirements for derecognizing financial assets, and requires
      additional disclosures. Statement No. 166 (FASB ASC 860 Transfers and
      Servicing) must be applied as of the beginning of each reporting entitys
      first annual reporting period that begins after November 15, 2009, for
      interim periods within that first annual reporting period and for interim
      and annual reporting periods thereafter. Earlier application is
      prohibited. This Statement must be applied to transfers occurring on or
      after the effective date. The Company is still evaluating the impact of
      the above pronouncement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Statement 167 is a revision to FASB Interpretation No. 46
      (Revised December 2003), Consolidation of Variable Interest Entities (FASB
      ASC 810 Consolidation), and changes how a reporting entity determines when
      an entity that is insufficiently capitalized or is not controlled through
      voting (or similar rights) should be consolidated. The determination of
      whether a reporting entity is required to consolidate another entity is
      based on, among other things, the other entitys purpose and design and
      the reporting entitys ability to direct the activities of the other
      entity that most significantly impact the other entitys economic
      performance. Statement No. 167 (FASB ASC 810 Consolidation) shall be
      effective as of the beginning of each reporting entitys first annual
      reporting period that begins after November 15, 2009, for interim periods
      within that first annual reporting period, and for interim and annual
      reporting periods thereafter. Earlier application is prohibited. The
      Company is still evaluating the impact of the above pronouncement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | On June 30, 2009, FASB issued FASB Statement No. 168,
      Accounting Standards Codification ( FASB ASC 105 Generally Accepted
      Accounting Principles) a replacement of FASB Statement No. 162 the
      Hierarchy of Generally Accepted Accounting Principles. On the effective
      date of this standard, FASB Accounting Standards Codification (ASC)
      became the source of authoritative U.S. accounting and reporting standards
      for nongovernmental entities, in addition to guidance issued by the
      Securities and Exchange Commission (SEC). This statement is effective for
      financial statements issued for interim and annual periods ending after
      September 15, 2009. If an accounting change results from the application
      of this guidance, an entity should disclose the nature and reason for the
      change in accounting principle in their financial statements. This new
      standard flattens the GAAP hierarchy to two levels: one that is
      authoritative (in FASB ASC) and one that is non-authoritative (not in FASB
      ASC). Exceptions include all rules and interpretive releases of the SEC
      under the authority of federal securities laws, which are sources of
      authoritative GAAP for SEC registrants, and certain grandfathered guidance
      having an effective date before March 15, 1992. Statement No. 168 is the
      final standard that will be issued by FASB in that form. There will no
      longer be, for example, accounting standards in the form of statements,
      staff positions, Emerging Issues Task Force (EITF) abstracts, or AICPA
      Accounting Statements of Position. The Company has adopted the new
      accounting standard. There was no material impact on the financial
      statements presented herein.

13

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

|3. | RESTRICTED CASH                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Restricted Cash represents interest bearing deposits
      placed with banks to secure banking facilities in the form of loans and
      notes payable. The restriction of funds is based on time. The funds that
      collateralize loans are held for 60 days in savings account that pay
      interest at the prescribed national daily savings account rate. For funds
      that underline notes payable, the cash is deposited in six month time
      deposits that pay interest at the national time deposit rate.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4. | TRADE ACCOUNTS
RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



| |                                      |   | 6/30/2010  |   |   | 12/31/2009 |  
| | ------------------------------------ | - | ---------- | - | - | ---------- | -
| | Trade accounts receivable            | $ | 17,777,966 |   | $ | 23,293,362 |  
| | Less:Allowance for doubtful accounts |   | (268,714   | ) |   | (267,590   | )
| |                                      | $ | 17,509,252 |   | $ | 23,025,772 |  
| |                                      |   |            |   |   |            |  
| |                                      |   |            |   |   |            |  
| | Allowance for bad
      debt:        |   | 6/30/2010  |   |   | 12/31/2009 |  
| | Beginning balance                    | $ | (267,590   | ) | $ | (127,967   | )
| | Additions to allowance               |   | (1,124     | ) |   | (139,623   | )
| | Bad debt written-off                 |   | -          |   |   | -          |  
| | Ending balance                       | $ | (268,714   | ) | $ | (267,590   | )



|   | The Company offers credit terms of between 30 to 60 days
      to most of their domestic customers, including supermarkets and
      wholesalers, around 90 days to most of their international customers, and
      between 0 to 15 days for most of the third-party distributors the Company
      works with.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                 
|5. | OTHER RECEIVABLE                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                 
|   | Other receivables consisted of the following as of June
      30, 2010 and December 31, 2009:                                                                                                                                                                                                                   



| |                                                        |   | 6/30/2010 |  |   | 12/31/2009 | 
| | ------------------------------------------------------ | - | --------- |  | - | ---------- | 
| |                                                        |   |           |  |   |            | 
| | Advances to employees for purchases of
      materials | $ | 2,251,521 |  | $ | 4,041,986  | 
| | Advances to employees for job/travel disbursements     |   | 70,972    |  |   | 23,890     | 
| | Amount due by a non-related enterprise                 |   | 1,756,542 |  |   | 1,999,671  | 
| | Other non-related receivables                          |   | 1,086,000 |  |   | 1,772,128  | 
| |                                                        | $ | 5,165,035 |  | $ | 7,837,675  | 



|   | Advances to employees for job/travel disbursements
      consisted of advances to employees for transportation, meals, client
      entertainment, commissions, and procurement of certain raw materials. The
      advances issued to employees may be carried for extended periods of time
      because employees may spend several months out in the field working to
      procure new sales contracts or fulfill existing contracts.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|6. | RELATED PARTY RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Related party receivable consisted of the following as of
      June 30, 2010 and December 31, 2009:                                                                                                                                                                                                                                                                                                                                      



| |            |   | 6/30/2010 |  |   | 12/31/2009 | 
| | ---------- | - | --------- |  | - | ---------- | 
| | Chen Si    | $ | 127,566   |  | $ | 541,245    | 
| | Lu Yundong |   | 10,281    |  |   | 32,358     | 
| | Liu Gang   |   | 29,637    |  |   | 29,513     | 
| |            | $ | 167,484   |  | $ | 603,116    | 

14

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

|   | Related party receivables represent advances issued
      to certain members of management for the purchase of raw materials in the
      normal course of business. The receivable is neither interest-bearing nor
      collateralized. The receivable had no impact on earnings. The related
      party will repay the outstanding balances within one operating
    period.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                 
|7. | INVENTORY                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                 
|   | Inventories consisted of the following as of June 30,
      2010 and December 31, 2009:                                                                                                                                                                                                                                                                                         



| |                |   | 6/30/2010  |  |   | 12/31/2009 | 
| | -------------- | - | ---------- |  | - | ---------- | 
| | Raw materials  | $ | 4,052,391  |  | $ | 12,014,402 | 
| | Finished goods |   | 30,023,369 |  |   | 14,385,715 | 
| |                | $ | 34,075,760 |  | $ | 26,400,117 | 



|8. | PROPERTY, PLANT, AND EQUIPMENT                                                                            
|-- | ----------------------------------------------------------------------------------------------------------
|   |                                                                                                           
|   | Property, plant, and equipment consisted of the following
      as of June 30, 2010 and December 31, 2009:



| |                                     |   | 6/30/2010  |   |   | 12/31/2009 |  
| | ----------------------------------- | - | ---------- | - | - | ---------- | -
| | At Cost:                            |   |            |   |   |            |  
| | Buildings                           | $ | 44,239,264 |   | $ | 29,181,372 |  
| | Landscaping, plant, and tree        |   | 2,770,533  |   |   | 2,758,944  |  
| | Machinery and equipment             |   | 8,273,174  |   |   | 7,783,775  |  
| | Office equipment                    |   | 467,381    |   |   | 466,411    |  
| | Motor vehicles                      |   | 407,879    |   |   | 357,902    |  
| |                                     | $ | 56,158,231 |   | $ | 40,548,404 |  
| | Less:Accumulated
      depreciation |   |            |   |   |            |  
| | Buildings                           |   | (2,170,968 | ) |   | (1,811,423 | )
| | Machinery and equipment             |   | (3,560,922 | ) |   | (3,226,015 | )
| | Office equipment                    |   | (277,573   | ) |   | (264,039   | )
| | Motor vehicles                      |   | (210,341   | ) |   | (230,341   | )
| |                                     |   | (6,219,804 | ) |   | (5,531,818 | )
| |                                     |   |            |   |   |            |  
| | Construction in Progress            |   | 699,747    |   |   | 6,263,821  |  
| |                                     | $ | 50,638,174 |   | $ | 41,280,407 |  

Construction in progress is mainly
comprised of 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 two years above.

Landscaping, plants, and trees are the
Chestnut subsidiarys 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.

15

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

|9. | LAND USE RIGHTS, NET                                                                       
|-- | -------------------------------------------------------------------------------------------
|   |                                                                                            
|   | Land use rights consisted of the following as of June 30,
      2010 and December 31, 2009:



6/30/2010
    
    
    12/31/2009Land use rights, at
      cost
    
    4,392,628
    
    $
    4,359,423Less:Accumulated amortization
    
    (556,937
    )
    
    (487,876
    )$
    3,835,691
    
    $
    3,871,547




|    | Land use rights represent the Companys purchase of usage
      rights for a parcel of land for a specified duration of time. The PRC
      government owns the land on which the Companys corporate campus is being
      constructed.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                         
|10. | SHORT-TERM BANK LOANS                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                         
|    | Short-term bank loans consisted of the following as of
      June 30, 2010 and December 31, 2009:                                                                                                                                       



| | Remark                                                   |  |   |  |   | 6/30/2010 |  |   | 12/31/2009 | 
| | -------------------------------------------------------- |  | - |  | - | --------- |  | - | ---------- | 
| | Loans from Junan County Construction
      Bank,         |  |   |  |   |           |  |   |            | 
| | • Interest rate at 5.346% per annum due1/18/2010         |  |   |  | $ | -         |  | $ | 212,075    | 
| | • Interest rate at 5.346% per annum due
      1/24/2010  |  |   |  |   | -         |  |   | 144,796    | 
| | • Interest rate at 5.346% per annum due 1/28/2010        |  |   |  |   | -         |  |   | 153,572    | 
| | • Interest rate at 5.346% per annum due
      3/8/2010   |  |   |  |   | -         |  |   | 153,571    | 
| | • Interest rate at 5.346% per annum due 3/25/2010        |  |   |  |   | -         |  |   | 153,572    | 
| | • Interest rate at 5.841% per annum due
      3/4/2011   |  |   |  |   | 381,870   |  |   | -          | 
| | • Interest rate at 5.346% per annum due 1/22/2010        |  |   |  |   | -         |  |   | 394,899    | 
| | • Interest rate at 5.346% per annum due
      1/10/2010  |  |   |  |   | -         |  |   | 394,898    | 
| | • Interest rate at 5.841% per annum due 1/14/2011        |  |   |  |   | 469,994   |  |   | -          | 
| | • Interest rate at 5.346% per annum due
      1/12/2010  |  |   |  |   | -         |  |   | 475,340    | 
| | • Interest rate at 5.841% per annum due 12/27/2010       |  | A |  |   | 719,678   |  |   | 716,667    | 
| | • Interest rate at 5.346% per annum due
      7/28/2010  |  |   |  |   | 881,238   |  |   | -          | 
| | • Interest rate at 5.346% per annum due 9/1/2010         |  |   |  |   | 1,174,985 |  |   | 1,170,073  | 
| | • Interest rate at 5.346% per annum due
      1/7/2010   |  |   |  |   | -         |  |   | 1,462,587  | 
| |                                                          |  |   |  |   |           |  |   |            | 
| | Loan from Junan County Agriculture
      Bank,           |  |   |  |   |           |  |   |            | 
| | • Interest rate at 7.965% per annum due 8/23/2010        |  | B |  |   | 1,615,604 |  |   | 1,608,846  | 
| | • Interest rate at 7.965% per annum due
      9/22/2010  |  |   |  |   | 1,454,043 |  |   | 1,447,961  | 
| | • Interest rate at 6.804% per annum due 3/3/2010         |  |   |  |   | -         |  |   | 1,462,587  | 
| | • Interest rate at 7.965% per annum due
      11/22/2010 |  |   |  |   | 646,242   |  |   | 643,538    | 
| | • Interest rate at 6.804% per annum due 3/11/2010        |  |   |  |   | -         |  |   | 2,193,881  | 
| | • Interest rate at 6.804% per annum due
      3/08/2010  |  |   |  |   | -         |  |   | 1,755,104  | 
| | • Interest rate at 7.965% per annum due 3/17/2010        |  |   |  |   | -         |  |   | 3,363,950  | 

16

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

| | • Interest rate at 6.903% per annum due
      3/30/2011          |  |   |  |  | 92,530    |  |  | -         | 
| | ---------------------------------------------------------------- |  | - |  |  | --------- |  |  | --------- | 
| | • Interest rate at 6.804% per annum due 8/19/2010                |  |   |  |  | 1,762,477 |  |  | -         | 
| | • Interest rate at 6.804% per annum due
      9/04/2010          |  |   |  |  | 1,909,350 |  |  | -         | 
| | • Interest rate at 6.804% per annum due 9/10/2010                |  |   |  |  | 2,203,096 |  |  | -         | 
| |                                                                  |  |   |  |  |           |  |  |           | 
| |                                                                  |  |   |  |  |           |  |  |           | 
| | Loan from Junan County Industrial and
      Commercial Banks,    |  |   |  |  |           |  |  |           | 
| |                                                                  |  |   |  |  |           |  |  |           | 
| | • Interest rate at 5.346% per annum due1/8/2010                  |  |   |  |  | -         |  |  | 438,776   | 
| | • Interest rate at 5.346% per annum due1/14/2010                 |  |   |  |  | -         |  |  | 541,157   | 
| | • Interest rate at 5.346% per annum due1/25/2010                 |  |   |  |  | -         |  |  | 614,287   | 
| | • Interest rate at 3.240% per annum due 3/15/2010                |  |   |  |  | -         |  |  | 463,640   | 
| | • Interest rate at 5.062% per annum due
      9/20/2010          |  |   |  |  | 484,681   |  |  | -         | 
| | • Interest rate at 5.346% per annum due 8/06/2010                |  |   |  |  | 616,867   |  |  | -         | 
| | • Interest rate at 4.860% per annum due
      9/16/2010          |  | C |  |  | 690,303   |  |  | -         | 
| | • Interest rate at 4.860% per annum due 10/12/2010               |  | C |  |  | 866,551   |  |  | -         | 
| | • Interest rate at 4.860% per annum due
      12/10/2010         |  | C |  |  | 1,013,424 |  |  | -         | 
| | • Interest rate at 3.718% per annum due 8/25/2010                |  |   |  |  | 1,204,359 |  |  | -         | 
| | • Interest rate at 3.590% per annum due
      7/28/2010          |  |   |  |  | 1,248,421 |  |  | -         | 
| | • Interest rate at 5.346% per annum due 7/19/2010                |  |   |  |  | 1,321,858 |  |  | -         | 
| |                                                                  |  |   |  |  |           |  |  |           | 
| |                                                                  |  |   |  |  |           |  |  |           | 
| | Loan from Junan County Agricultural
      Financial Institution, |  |   |  |  |           |  |  |           | 
| |                                                                  |  |   |  |  |           |  |  |           | 
| | • Interest rate at 10.939% per annum
      due 1/22/2010         |  |   |  |  | -         |  |  | 1,170,070 | 
| | • Interest rate at 7.222% per annum due 3/1/2011                 |  | D |  |  | 1,028,112 |  |  | -         | 
| | • Interest rate at 10.939% per annum
      due 2/07/2011         |  |   |  |  | 1,174,985 |  |  | -         | 
| |                                                                  |  |   |  |  |           |  |  |           | 
| | Loan from Linyi Commercial Bank,                                 |  |   |  |  |           |  |  |           | 
| | • Interest rate at 9.293% per annum due 1/19/2010                |  |   |  |  | -         |  |  | 658,164   | 
| | • Interest rate at 11.151% per annum
      due 1/21/2011         |  |   |  |  | 660,929   |  |  | -         | 
| | • Interest rate at 8.496% per annum due 12/21/2010               |  |   |  |  | 690,303   |  |  | 687,416   | 
| | • Interest rate at 11.340% per annum
      due 12/16/2010        |  | E |  |  | 1,468,731 |  |  | 1,462,587 | 
| |                                                                  |  | E |  |  |           |  |  |           | 
| | • Interest rate at 11.340% per annum
      due 12/14/2010        |  |   |  |  | 1,468,731 |  |  | 1,462,587 | 
| |                                                                  |  |   |  |  |           |  |  |           | 
| | China Minsheng Banking Corporation,
      Linyi Branch,          |  |   |  |  |           |  |  |           | 
| | • Interest rates at 6.372% per annum due 6/09/2011               |  |   |  |  | 2,937,461 |  |  | -         | 

17

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

| | Loan from Beijing Miyun County Shilipu Rural
      Financial Institution, |  |   |  |   |            |  |   |            | 
| | ------------------------------------------------------------------------- |  | - |  | - | ---------- |  | - | ---------- | 
| | • Interest rates at 7.434% per annum
      due 1/20/2010                  |  |   |  |   | -          |  |   | 1,462,587  | 
| | • Interest rates at 6.903% per annum due 9/30/2010                        |  |   |  |   | 2,790,588  |  |   | 2,778,915  | 
| |                                                                           |  |   |  |   |            |  |   |            | 
| | Loan from China Merchants Bank, Beijing,                                  |  |   |  |   |            |  |   |            | 
| | • Interest rate at 5.310% per annum on
      demand                       |  |   |  |   | -          |  |   | 731,294    | 
| |                                                                           |  |   |  |   |            |  |   |            | 
| | Loan from China Agricultural Bank,
      Luotian Branch                   |  |   |  |   |            |  |   |            | 
| | • Interest rate at 6.372% per annum due 8/25/2010                         |  |   |  |   | 1,468,731  |  |   | 1,901,363  | 
| |                                                                           |  |   |  |   |            |  |   |            | 
| | Bank of Beijing,                                                          |  |   |  |   |            |  |   |            | 
| | • Interest rate at 6.903% per annum due
      7/29/2010                   |  |   |  |   | 293,746    |  |   | 292,517    | 
| |                                                                           |  |   |  |   |            |  |   |            | 
| | East West Bank (Formerly United
      Commercial Bank), China Branch,     |  |   |  |   |            |  |   |            | 
| | • Interest rate at 5.494% per annum due 1/14/2011                         |  | F |  |   | 953,985    |  |   | 1,050,137  | 
| |                                                                           |  |   |  |   |            |  |   |            | 
| | HSBC Miyun Branch,                                                        |  |   |  |   |            |  |   |            | 
| | • Interest rate at 6.804% per annum due
      4/08/2010                   |  |   |  |   |            |  |   | 292,517    | 
| | • Interest rate at 7.430% per annum due 10/08/2010                        |  |   |  |   | 293,746    |  |   | -          | 
| | • Interest rate at 5.840% per annum due
      6/09/2011                   |  |   |  |   | 293,746    |  |   | -          | 
| |                                                                           |  |   |  |   |            |  |   |            | 
| | Shenzhen Development Bank,                                                |  |   |  |   |            |  |   |            | 
| | • Interest rate at 5.576% per annum due 12/29/2010                        |  |   |  |   | 1,468,731  |  |   | 1,462,587  | 
| |                                                                           |  |   |  |   |            |  |   |            | 
| | Luotian Agricultural Development Bank,                                    |  |   |  |   |            |  |   |            | 
| | • Interest rate at 0.670% per month due
      12/11/2010                  |  |   |  |   | -          |  |   | 109,694    | 
| |                                                                           |  |   |  |   |            |  |   |            | 
| |                                                                           |  |   |  | $ | 37,750,096 |  | $ | 35,488,212 | 

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

Remark: A: A parcel of 19,840
square meters land use right was used as collateral for this loan. B: A
building and land use right worthy of a total of $1,615,604 was used as
collateral for this loan. C: Account receivable and sales contract of
$558,265 was used as collateral for these three loans. D: A parcel of Land
of Shandong Green Garden Food Company was used as collateral for this loan.
E: Machinery of $590,870 was used as collateral for these two loans. 
  F: A parcel of 19,507 square meters land use right, owned by Sishui Xinlu, was
  used as collateral for this loan.

18

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

|11. | TAXES PAYABLE                                                                            
|--- | -----------------------------------------------------------------------------------------
|    |                                                                                          
|    | Taxes payable consisted of the following as of June 30,
      2010 and December 31, 2009:



| |                                  |   | 6/30/2010 |  |   | 12/31/2009 | 
| | -------------------------------- | - | --------- |  | - | ---------- | 
| | Value added tax payable          | $ | 265,724   |  | $ | 328,608    | 
| | Corporate income tax payable     |   | 860,777   |  |   | 1,842,751  | 
| | Employee payroll tax withholding |   | 10,614    |  |   | 3,449      | 
| | Property tax payable             |   | 12,028    |  |   | 12,279     | 
| | Stamp tax payable                |   | 67        |  |   | 359        | 
| | Sales tax payable                |   | 110       |  |   | -          | 
| | Land use tax payable             |   | 41,434    |  |   | 41,260     | 
| | Import tariffs                   |   | 6,663     |  |   | 6,635      | 
| |                                  | $ | 1,197,417 |  | $ | 2,235,341  | 



|12. | ACCRUED EXPENSES AND OTHER PAYABLE                                                                             
|--- | ---------------------------------------------------------------------------------------------------------------
|    |                                                                                                                
|    | Accrued expenses and other payables consisted of the
      following as of June 30, 2010 and December 31,
2009:



| |                                 |   | 6/30/2010 |  |   | 12/31/2009 | 
| | ------------------------------- | - | --------- |  | - | ---------- | 
| | Accrued salaries and wages      | $ | 170,991   |  | $ | 500,390    | 
| | Accrued utility expenses        |   | 179,098   |  |   | 263,492    | 
| | Accrued interest expenses       |   | 96,323    |  |   | 9,264      | 
| | Accrued transportation expenses |   | 280,563   |  |   | 344,841    | 
| | Other accruals                  |   | 2,334,908 |  |   | 184,860    | 
| | Business and other taxes        |   | 1,188,024 |  |   | 2,344,746  | 
| | Purchase disbursement payable   |   | 271,735   |  |   | 2,750,547  | 
| | Accrued staff welfare           |   | 50,260    |  |   | 24,352     | 
| |                                 |   |           |  |   |            | 
| |                                 | $ | 4,571,902 |  | $ | 6,422,492  | 



|13. | LONG-TERM DEBT                                                                                            
|--- | ----------------------------------------------------------------------------------------------------------
|    |                                                                                                           
|    | Long-term debt current portion consisted of the following
      as of June 30, 2010 and December 31, 2009:



| |                                                                                 |   | 6/30/2010 |  |   | 12/31/2009 | 
| | ------------------------------------------------------------------------------- | - | --------- |  | - | ---------- | 
| | Loans from Luotian Agricultural Development Bank                                |   |           |  |   |            | 
| | • Interest rate at 0.670% per annum due
      12/11/2010                        | $ | 110,154   |  | $ | -          | 
| | • Interest rate at 2.100% per annum due 12/11/2010                              |   | 12,852    |  |   | -          | 
| | • Interest rate at 2.100% per annum due
      12/11/2011                        |   |           |  |   | -          | 
| |                                                                                 |   |           |  |   |            | 
| | Loans from East West Bank (Formerly
      United Commercial Bank), China Branch |   |           |  |   |            | 
| | • Interest rate at 5.494% per annum due 1/14/2010                               |   | -         |  |   | -          | 
| | • Interest rate at 5.494% per annum due
      7/29/2010                         |   | 186,904   |  |   | -          | 
| |                                                                                 |   |           |  |   |            | 
| |                                                                                 | $ | 309,910   |  | $ | -          | 

Long-term debt non-current portion
consisted of the following as of June 30, 2010 and December 31, 2009:

| |                                                        |  | *6/30/2010* |  |  | 12/31/2009 | 
| | ------------------------------------------------------ |  | ----------- |  |  | ---------- | 
| | Loans from Luotian Agricultural
      Development Bank |  |             |  |  |            | 

19

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

| | • Interest rate at 2.100% per annum
      due 12/11/2011                            | $ | 12,851 |  | $ | 25,595  | 
| | ----------------------------------------------------------------------------------- | - | ------ |  | - | ------- | 
| |                                                                                     |   |        |  |   |         | 
| | *Loans from East West Bank
      (Formerly United* *Commercial Bank), China Branch* |   |        |  |   |         | 
| | • Interest rate at 5.494% per annum due 1/14/2010                                   |   | -      |  |   | 269,278 | 
| |                                                                                     | $ | 12,851 |  | $ | 294,873 | 



|14. | NON-CONTROLLING INTERESTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The non-controlling interest represents the 19.8% equity
      of Shandong Green Foodstuff Co., Ltd. held by the Shandong Economic
      Development Investment Corporation, which is a state-owned
  interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|15. | CAPITALIZATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Dating back to May 3, 2007, the Company underwent a
      reverse-merger and a concurrent financing transaction that resulted in
      24,923,178 shares of outstanding common stock that remained unchanged
      through December 31, 2007. During the course of 2008, several holders of
      warrants issued in connection with the financing transaction exercised
      their rights to purchase shares at the prescribed exercise price. The
      holders of the warrants exercised the right to purchase a total of 360,207
      shares; 110,752 of which shares were used for the exercise price of the
      warrants and were cancelled under the cashless exercise feature of the
      warrants. Ultimately, 249,455 of new shares were issued to those who
      exercised their warrant. The Company also made an adjustment to it
      outstanding share count for rounding errors as result of the split and
      reverse splits made at the time of the reverse merger. The number of
      shares in the adjustment was an addition of seven shares. The Company
      believes the adjustment of seven shares is immaterial to both prior and
      current earnings per share calculation. As detailed in the table below,
      the total number of outstanding shares at December 31, 2008 was
      25,172,640.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | During 2009, the Company issued 56,393 shares of stock to
      its employees and vendors and 5,011,169 shares to investors. The Company
      issued 1,334,573 stock options to employees on July 28, 2009. 1,753,909
      shares of Series A warrants and 501,115 shares of Series B warrants were
      issued to investors on October 28, 2009. The total number of shares issued
      and outstanding is 30,240,202 at June 30,
2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



Par value authorized
    Issuance date
    Shares outstandingCommon stock at 1/1/2009
      200,000,000
      
      25,172,640New shares issued to employees and vendors during 2009
      
      Various dates
      56,393New shares issued to PIPE investors
      
      10/28/2009
      5,011,169Common stock at 6/30/2010
      
      30,240,202
      30,240,202




Warrants and options
    Number of warrants or options
    Issuance date
    Expiration dateIssued to PIPE investors  first round financing
    1,037,858
    5/3/2007
    5/2/2010Issued to placement agent  first round financing
    489,330
    5/3/2007
    5/2/2010Employee stock options
    1,334,573
    7/28/2009
    7/27/2014PIPE investors second round financing - Series A
    1,753,909
    10/28/2009
    4/28/2015PIPE investors second round financing - Series B
    501,115
    10/28/2009
    10/28/2012Total warrants
    5,116,785


20

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

|16. | INCOME TAXES                                                                                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                 
|    | The following tables provide the reconciliation of the
      differences between the statutory and effective tax expenses for the six
      months ended June 30, 2010 and 2009.



2010
    
    
    2009Income attributed to PRC
    $
    6,920,315
    
    $
    5,171,101Loss attributed to US*
    
    (500,361
    )
    
    (125,725
    )Income before tax
    
    6,419,954
    
    
    5,045,376PRC Statutory Tax at 25% Rate
    
    1,604,989
    
    
    1,261,344Effect of tax exemption granted
    
    (75,393
    )
    
    (77,866
    )Income tax
    $
    1,529,596
    
    $
    1,183,478


Per Share Effect of Tax Exemption

2010
    
    
    2009Effect of tax exemption
      granted
    $
    (75,393
    )
    $
    (77,866
    )Weighted-Average Shares Outstanding Basic
    
    26,075,413
    
    
    25,177,640Per share effect
    $
    (0.003
    )
    $
    (0.003
    )


The difference between the U.S. federal
statutory income tax rate and the Companys effective tax rate was as follows
for the six months ended June 30, 2010 and 2009:

2010
    
    
    2009U.S. federal statutory income
      tax rate
    $
    35.00%
    
    $
    35.00%Lower rates in PRC, net
    
    -10.00%
    
    
    -10.00%Tax holiday for foreign
      investments
    
    -1.17%
    
    
    -1.54%The Companys effective tax rate
    $
    23.83%
    
    $
    23.46%


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

The Company has accrued a deferred tax
asset as a result of its net operating loss in 2009 because the Company has
plans to setup operations in the United States. The company anticipates that the
operations within the United States will generate income in the future so that
it will be able to take full advantage of the accrued asset. Accordingly the
Company has not provided a valuation allowances for the accrued tax asset.

The Companys has detailed the tax
rates for its subsidiaries for 2010 and 2009 in the following table.

Income Tax Rate
    
    2010
    
    
    2009International Lorain
    
    0%
    
    
    0%Junan Hongran
    
    25%
    
    
    25%Luotian Lorain
    
    15%
    
    
    15%Beijing Lorain
    
    15%
    
    
    15%Shangdong Lorain
    
    25%
    
    
    25%Dongguan Lorain
    
    25%
    
    
    25%


21

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

|17. | SALES BY PRODUCT TYPE                                                                        
|--- | ---------------------------------------------------------------------------------------------
|    |                                                                                              
|    | Sales by categories of product consisted of the following
      as of June 30, 2010 and 2009:



Category
    
    2010
    
    
    2009Chestnut
    $
    27,828,801
    
    $
    26,546,873Convenience food
    
    17,359,167
    
    
    7,347,253FCB food
    
    8,590,562
    
    
    11,272,335Total
    $
    53,778,530
    
    $
    45,166,461


Revenue by geography consisted of the
following as of June 30, 2010 and 2009:

Country
    
    2010
    
    
    2009Belgium
    $
    445,969
    
    $
    635,579Canada
    
    71,599
    
    
    -China
    
    43,646,930
    
    
    37,731,405France
    
    135,987
    
    
    250,885Germany
    
    158,599
    
    
    -Holland
    
    89,710
    
    
    142,370Hong Kong
    
    65,838
    
    
    95,424Japan
    
    4,227,008
    
    
    2,424,172Malaysia
    
    740,106
    
    
    246,747Saudi Arabia
    
    -
    
    
    993,246Singapore
    
    256,664
    
    
    328,319South Korea
    
    2,435,059
    
    
    1,631,680Spain
    
    101,233
    
    
    154,639Taiwan
    
    264,210
    
    
    117,827United Kingdom
    
    773,566
    
    
    158,644United States of America
    
    152,059
    
    
    178,543Kuwait
    
    -
    
    
    76,981Other
    
    213,993
    
    
    -Total
    $
    53,778,530
    
    $
    45,166,461




|18. | SHARE BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | On July 27, 2009, the Companys Board of Directors
      adopted the American Lorain Corporation 2009 Incentive Stock Plan (the
      Plan). The Plan provides that the maximum number of shares of the
      Companys common stock that may be issued under the Plan is 2,500,000
      shares. The Companys employees, directors, and service providers are
      eligible to participate in the Plan.                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | For the year ended December 31, 2009, the Company
      recorded a total of $166,346 of shared based compensation expense. The
      Company issued warrants that upon exercise would result in the issuance of
      1,334,573 common shares. These stock options vest over three years, where
      33.33% vest annually. The expense related to the stock options was
      $107,375. The Company also recorded expense of $58,971 for the issuance of
      56,393 common shares to participants, respectively. The common shares
      vested immediately. Given the materiality and nature of share based
      compensation, the entire expense has been recorded as general and
      administrative expenses.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | During the period ended June 30, 2010, the Company
      recorded a total of $454,949 stock option and its related general and
      administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

22

---

AMERICAN LORAIN CORPORATIONNOTES TO FINANCIAL
STATEMENTS - JUNE 30, 2010 AND DECEMBER 31, 2009(STATED IN US DOLLARS)

The range of the exercise prices of the
stock options granted since inception of the plan are shown in the following
table:

Price Range
    Number of Shares$0 - $4.99
    1,334,573 shares$5.00 - $9.99
    0 shares$10.00 - $14.99
    0 shares


No tax benefit has yet to be accrued or
realized. For the period ended June 30, 2010 the Company has yet to repatriate
its earnings, accordingly it has not recognized any deferred tax assets or
liability in regards to benefits derived from the issuance of stock options.

The Company used the Black-Scholes
Model to value the warrants granted. The following shows the weighted average
fair value of the grants and the assumptions that were employed in the model:

Weighted-average fair value of grants:
    $
    1.6559Risk-free interest rate:
    
    1.79%Expected volatility:
    
    5.34%Expected life in months:
    
    48.00




|19. | LEASE COMMITMENTS                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                       
|    | The Company has entered into an operating lease agreement
      leasing a factory building located in Dongguan, China. The lease was
      signed by Shandong Lorain on behalf of Dongguan Lorain and expires on
      August 9, 2018.
|    |                                                                                                                                                                                                                                       
|    | The minimum future lease payments for this property at
      June 30, 2010 are shown in the following
table:                                                                                                                          



From
    
    To
    
    
    USD7/1/2010
    
    12/31/2010
    
    $
    42,1301/1/2011
    
    12/31/2011
    
    
    84,2591/1/2012
    
    12/31/2012
    
    
    84,2591/1/2013
    
    12/31/2013
    
    
    87,5361/1/2014
    
    12/31/2014
    
    
    92,6851/1/2015
    
    12/31/2015
    
    
    92,6851/1/2016
    
    12/31/2016
    
    
    92,6851/1/2017
    
    12/31/2017
    
    
    92,6851/1/2018
    
    8/9/2018
    
    
    56,641$
    725,565


The outstanding lease commitment as of
June 30, 2010 is $725,565.

The minimum future lease payments for
this property at December 31, 2009 are shown in the following table:

From
    
    To
    
    
    USD1/1/2010
    
    12/31/2010
    
    $
    84,2451/1/2011
    
    12/31/2011
    
    
    84,2451/1/2012
    
    12/31/2012
    
    
    84,2451/1/2013
    
    12/31/2013
    
    
    87,5211/1/2014
    
    12/31/2014
    
    
    92,6701/1/2015
    
    12/31/2015
    
    
    92,6701/1/2016
    
    12/31/2016
    
    
    92,6701/1/2017
    
    12/31/2017
    
    
    92,6701/1/2018
    
    8/9/2018
    
    
    56,631$
    767,567


The outstanding lease commitment as of
December 31, 2009 is $767,567.

23

---

ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Caution Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from
any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to the factors described in the section captioned Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terms such as anticipates, believes, could, estimates, expects, intends, may, plans,
potential, predicts, projects, should, would and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to
future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report completely and with the understanding that our actual future results may be materially different from what we
expect.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information
becomes available in the future.

Overview

We are an integrated food manufacturing company with headquarters in Shandong Province, China. We develop, manufacture and sell the following types of food products:

- chestnut products,
- convenience foods (including ready-to-cook foods, ready-to-eat foods, and meals ready-to-eat); and
- frozen foods.

We conduct our production activities in China. Our products are sold in 26 provinces and administrative regions in China and 42 foreign countries. We believe that we are the largest processed chestnut foods manufacturer in China. We have developed
brand recognition for our chestnut products in China, Japan and South Korea over the past 10 to 15 years. We produced over 50 high value-added processed chestnut products in the second quarter of 2010. We derive most of our revenues from sales in
China, Japan and South Korea. Our primary strategy for 2010 is to expand our brand recognition in the Chinese market for our convenience foods products. We are also working to expand our brand recognition in China for our Chestnut products and
frozen products. In addition, we are seeking distribution partners and local vendors to expand our marketing efforts in Asia, North America, Europe and the Middle East. We currently have immaterial sales and marketing activity in the United States,
although our long-term plan is to significantly expand our activities there.

Sales in the first two quarters of 2010 benefited from exports to Korea and Japan and indicated that American Lorains key export markets in northeast Asia improved after a soft year in 2009. In the coming quarters, American Lorain sees higher
demand for its traditional chestnut product line along with additional sales revenues being generated by frozen chestnut summer promotions in Beijing and Chongqing. On May 3, 2010, American Lorain detailed a summer promotion of frozen chestnuts for
sales at Lorain®-branded counters which is expected to contribute additional revenues in 2010. The summer promotion has been well received by retailers in China as well as in other Asian markets. American Lorain plans to increase the number of
its branded chestnut counters at retail points to around 2,000 from the current approximately 250 by the end of 2010 in these markets to support summer and winter sales of its chestnut products.

24

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Frozen foods sold primarily to select export markets in Europe and wholesale customers like Yums! Foods in China contributed approximately 16.0% in revenues for the first two quarters compared to 25.0% in the first two quarters of 2009. Among the
three business segments American Lorain operates, frozen foods have the lowest average gross margin of 16%-18%. Chestnut products and convenience food products have an average gross margin of 25%-28% and 22%-24% respectively. American Lorain has
been focusing more resources on the development and sales of higher margin chestnut and convenience food products. Although we plan to continue servicing our frozen food customers for the foreseeable future in order to retain customer relationships
we expect that revenue contribution from the frozen foods category as a percentage of total revenue will decline in future. Currently, American Lorain uses mostly outsourced, third party manufacturing facilities for its frozen foods and maintains
limited production exposure and contractual obligations in this segment.

Production Factors that Affect our Financial and Operational Condition

Our business depends on obtaining a reliable supply of various agricultural products, including chestnuts, vegetables, fruits, red meat, fish, eggs, rice, flour and packaging products. During the first two quarters of 2010, the cost of our raw
materials increased from $32.4 million to $38.0 million, as compared to the first two quarters of 2009, for an increase of approximately 17.3% . During the second quarter of 2010, the cost of our raw materials increased from $17.9
million to $20.8 million, as compared to the second quarter of 2009, for an increase of approximately 16.2% . 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. Despite our efforts to control our supply of raw materials and maintain good relationships with our suppliers, we could lose one or more of our suppliers at any time. The loss of several suppliers may be difficult to
replace and could increase our reliance on higher cost or lower quality suppliers, which could negatively affect our profitability. In addition, if we have to increase the number of our suppliers of raw materials 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. 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.

We spent approximately $10 million in the second quarter to complete the new frozen storage, new bean production lines as well as the new multi-purpose convenience food production lines in our Shandong and Dongguan facilities. We fund the
investment from cash generated from operations. We expect that the new facilities will provide the additional capacity we need to meet the growing convenience food business. We will, however, continue to implement our strategy on production line and
storage space lease when external capacity and frozen storage space is needed to support the growing business from time to time. We currently do not anticipate any difficulty in leasing external production lines and storage spaces. However, we
cannot guarantee such availability for the future.

On June 28, 2010, we signed a Letter of Intent to acquire 100% ownership of Shandong Greenpia Foodstuff Co., Ltd., a manufacturer of retail-packaged, Korean-style kimchi cold dishes. The acquisition included cash and stock offer of $2.1 million
in cash and 731,707 shares of American Lorain common stock, respectively. With the acquisition we will add a total of two kimchi-style cold dish production lines with annual capacity of 3,500 metric tons. We expect to obtain governmental approval on
the acquisition and complete the transaction on or before September 30.

Seasonality

Chestnut season in China lasts from September to January. We purchase and produce raw chestnuts during these months and store them in our refrigerated storage facilities throughout the year. Once we obtain a purchase order during the rest of the
year, we remove the chestnuts from storage, process them and ship them within one day of production. Since most chestnuts are produced and sold in the fourth quarter, the Company generally performs best in the fourth quarter.

Uncertainties that Affect our Financial Condition

We spend a significant amount of cash on our operations, principally to procure raw materials for our products. Many of our suppliers, including chestnut, vegetable and fruit farmers, and suppliers of packaging materials, require us to prepay for
their supplies in cash or pay on the same day that such supplies are delivered to us. However, some
of the suppliers with whom we have a long-standing business relationship allow us to pay on credit. In the first two quarters of 2010, we paid for approximately 16.0% of our raw materials on credit. In the second quarter of 2010, we paid for
approximately 13.8% of our raw materials on credit. We fund the majority of our working capital requirements out of cash flow generated from operations. If we fail to generate sufficient sales, or if our suppliers stop offering us credit terms, we
may not have sufficient liquidity to fund our operating costs and our business could be adversely affected.

25

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We also fund approximately 62.7% of our working capital requirements from the proceeds of short-term loans from Chinese banks. We expect to continue to fund our working capital requirements with such loans in the future. Such loans are generally
secured by our fixed assets, receivables and/or guarantees by third parties. Our loan balance from short-term bank loans as of June 30, 2010 was approximately $37.7 million. The term of almost all such loans is one year or less. Historically,
our lenders have permitted us to roll over such loans on an annual basis. However, we may not have sufficient funds available to pay all of our borrowings upon maturity, and our lenders may not permit us to roll over the loans in the future. 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, legal actions against us by our creditors, or even insolvency.

We anticipate that our existing capital resources and cash flows from operations and current and expected short-term bank loans will be adequate to satisfy our liquidity requirements for the next 12 months. However, if available liquidity is not
sufficient to meet our operating and loan obligations as they come due, our plans include obtaining alternative financing arrangements or further reducing expenditures as necessary to meet our cash requirements. However, there is no assurance that,
if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity. Currently, the capital markets for small capitalization companies are extremely difficult and banking institutions have
become stringent in their lending requirements. Accordingly, we cannot be sure of the availability or terms of any third party financing. However, we successfully consummated a private placement financing of approximately $12.0 million through
the sale of common stock and warrants to several accredited investors on November 3, 2009, the proceeds of which are being used to support a planned nationwide commercial campaign to promote our convenience food products in the Chinese market and to
increase brand awareness for our Ready-to-Cook foods, Ready-to-Eat foods, and Meals Ready-to-Eat, as well as our chestnut products.

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.

The crisis of the financial and credit markets worldwide in the second half of 2008 has led to a severe economic recession worldwide, and the outlook for the remainder of 2010 is uncertain. A continuation or worsening of unfavorable economic
conditions, including the ongoing credit and capital markets disruptions, could have an adverse impact on our business, operating results or financial condition in a number of ways. For example, we may experience declines in revenues, profitability
and cash flows as a result of reduced orders, delays in receiving orders, delays or defaults in payment or other factors caused by the economic problems of our customers and prospective customers. We may experience supply chain delays, disruptions
or other problems associated with financial constraints faced by our suppliers and subcontractors. In addition, changes and volatility in the equity, credit and foreign exchange markets and in the competitive landscape make it increasingly difficult
for us to predict our revenues and earnings into the future.

In 2009, we shortened credit terms for many of our international and domestic distributors from between 30 and 180 days to between 30 and 60 days for domestic distributors, and around 90 days for international distributors. Our large customers may
fail to meet these shortened credit terms, in which case we may not have sufficient cash flow to fund our operating costs and our business could be adversely affected.

26

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In 2009, we introduced to the market several new products,
including the series of bean products, cold-dish products and lunch-box
products. Such additions to our product family increased the number of
suppliers, many of whom were new to us. Most of these new suppliers require
prepayment, in part or in full amount, before delivery of the supplies. Our cash
flow suffered from these increased advances to suppliers. Our suppliers may not
waive or reduce their prepayment requirements, in which case if we fail to find
alternative suppliers, we may not have sufficient cash flow to fund our
operations and our business could be adversely affected.

Results of Operations

Three Months Ended June 30, 2010 Compared to Three Months
Ended June 30, 2009

The following table summarizes the results of our operations
during the three-month periods ended June 30, 2010 and June 30, 2009,
respectively and provides information regarding the dollar and percentage
increase or (decrease) from the three-month period ended June 30, 2009 compared
to the three-month period ended June 30, 2010.

(All amounts, other than percentages, stated in U.S. dollar)

|                                     | Three months
    ended |                |               
|------------------------------------ | ---------------------- | -------------- | --------------
|                                     | June 30,               | Dollar($)      | Percentage (%)
|                                     | 2010                   | 2009           | Increase      
|                                     | (In US Dollar)         | (In US Dollar) | (Decrease)    
|Net revenues                         | 29,218,314             | 23,965,924     | 5,252,390     
|Cost of revenues                     | (22,499,645)           | (18,675,167)   | (3,824,478)   
|Gross profit                         | 6,718,669              | 5,290,757      | 1,427,912     
|Operating expenses                   |                        |                |               
|Selling and marketing
    expenses   | (1,194,996)            | (1,220,317)    | 25,321        
|General and administrative expenses  | (932,210)              | (914,892)      | (17,318)      
|                                     |                        |                |               
|Operating Income                     | 4,591,463              | 3,155,548      | 1,435,915     
|                                     |                        |                |               
|Government subsidy income            | 196,003                | 97,663         | 98,340        
|Interest and other income            | 9,490                  | 127,279        | (117,789)     
|Other expenses                       | (44,714)               | (69,286)       | 24,572        
|Interest expense                     | (1,023,129)            | (744,825)      | (278,304)     
|                                     |                        |                |               
|Earnings before tax                  | 3,729,113              | 2,566,379      | 1,162,734     
|                                     |                        |                |               
|Income tax                           | (857,604)              | (602,706)      | (254,898)     
|                                     |                        |                |               
|Income before minority
    interests | 2,871,509              | 1,963,673      | 907,836       
|                                     |                        |                |               
|Minority interests                   | (191,896)              | (108,046)      | (83,850)      
|Net income                           | 2,679,613              | 1,855,627      | 823,986       

Revenue

Net Revenues. Our net revenue for the three months ended
June 30, 2010 amounted to $29.2 million, which represents an increase of
approximately $5.3 million, or 21.9%, from the three-month period ended on June
30, 2009, in which our net revenue was $23.97 million. The increased revenues
were attributable to increased revenues from sales of our chestnut and
convenience food products as a result of 7.3% and 62.6% (or $1.0 million and
$4.0 million) increase in sales respectively of such products; due to our
effective marketing efforts and well established domestic and international
distribution network. Frozen foods sold primarily to select export markets in
Europe and wholesale customers like Yums! Foods in China contributed
approximately 14.0% in revenues for the quarter compared to 15.8% in the second
quarter of 2009.

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Cost of Revenues.During the three months ended June 30,
2010, we experienced an increase in cost of revenue, which consists of raw
materials, direct labor and manufacturing overhead expenses, of $3.8 million, in
comparison to the three months ended June 30, 2009, from approximately $18.7
million to $22.5 million, reflecting an increase of approximately 20.5% .
Approximately 76.3%, or $2.9 million, of this increase was attributable to an
increase in raw material costs, which increased from $17.9 million during the
three months ended June 30, 2009 to $20.8 million, or approximately 16.2%,
during the three months ended June 30, 2010.

The factors that contributed to the remaining 23.7% increase in
cost of revenues were: an increase in wage expense for factory workers, an
increase in depreciation expenses for capital equipment and an increase in the
cost of consumables used in conjunction with capital equipment.

Gross Profit. Our gross profit increased $1.4 million,
or 27.0%, to $6.7 million for the three months ended June 30, 2010 from $5.3
million for the same period in 2009 as a result of higher revenues, offset by
higher costs of revenues, for the reasons indicated immediately above. Our gross
margins increased from 22.1% to 23.0% because our product mix in the period
ended June 30, 2010 consisted of more higher margin chestnuts and convenience
foods, and fewer lower margin frozen foods, as compared to the period ended June
30, 2009. Gross profit margins by product segment for the three months ended
June 30, 2010 are; 25-28% for chestnuts, 22-24% for convenience foods and 16-18%
for frozen foods.

Operating Expenses

Selling and Marketing Expenses. Our selling and
marketing expenses decreased approximately $0.025 million, or 2.1%, to $1.19
million in the second quarter of 2010 from $1.22 million in the second quarter
of 2009. The following table reflects the main factors that contributed to this
decrease as well as the dollar amount that each factor contributed to this
decrease. The decreases listed in the table below were partially offset by
increases in dollar amount of other selling and marketing expenses, including
advertising, supermarket fees, customer lodging, phone, postage and courier
charges, toll road expense, warehousing costs and expenses for professional
movers.



|(in
    U.S. dollars) | Decrease in Costs in the Three Months Ended June 30, 2010
over the Three Months Ended 30-June-09
|--------------------- | ------------------------------------------------------------------------------------------------
|Wage (Sales)          | (40,288)                                                                                        
|Transportation        | (28,492)                                                                                        
|Inspection Fees       | (6,016)                                                                                         

Selling and marketing expenses stayed flat as we gradually
rolled out our marketing activities and controlled our cost very carefully while
expanding our distribution channels in China. We might, however, increase our
selling and marketing expenses in the second half of 2010 as we continue to
build up our brand recognition in the China market for our chestnut and
convenience food products.

General and Administrative Expenses.We experienced an
increase in general and administrative expense of approximately $0.017 million
from approximately $0.91 million to approximately $0.93 million for the three
months ended June 30, 2010, compared to the same period in 2009. The following
table reflects the main factors that contributed to this increase as well as the
dollar amount that each factor contributed to this increase:

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|Factor          | Dollar Increase      
|--------------- | ---------------------
|                | (in
    U.S. dollars)
|Staff Welfare   | 72,798               
|Travel Expenses | 21,140               
|Rental          | 35,139               
|Stamp Duty      | 12,120               

The increases listed in the table above were partially offset
by decreases in dollar amount of other factors, including office expenses,
consulting fees and waste water treatment expenses.

Interest Expenses.We experienced an increase in
interest expenses of approximately $0.28 million from approximately $0.74
million to $1.02 million for the three months ended June 30, 2010, compared to
the same period in 2009. The increase was mainly due to the increase in
outstanding balance of our bank loans, which was $37.8 million at the end of
June 30, 2010, compared to $32.0 million at the end of June 30, 2009.

Income Before Taxation and Minority Interest

Income before taxation and minority interest increased $1.2
million, or 45.3%, to $3.7 million for the three months ended June 30, 2010 from
$2.6 million for the same period of 2009. The increase was mainly attributable
to the increase of our sales revenue as described above in the three months
ended June 30, 2010 as compared to the three months ended June 30, 2009.

Income Taxes

Income taxes increased $0.25 million, or 42.3%, to $0.86
million in the second quarter of 2010, as compared to $0.60 million in the
second quarter of 2009. This increase was attributable to the higher earnings
before tax and higher income tax rate in 2010 as compared to 2009.

Effective January 1, 2008, the PRC government implemented a new
25% tax rate across the board for all enterprises, without any tax holiday.
However, the PRC government has established a set of transition rules to allow
enterprises that already started tax holidays before January 1, 2008 to continue
utilizing such tax holidays until they are fully utilized.

The income tax rates applicable to our Chinese operating
subsidiaries in 2009 and 2010 are depicted in the following table:

|                      |  | 2009 |  |  | 2010 | 
|--------------------- |  | ---- |  |  | ---- | 
|Junan Hongrun         |  | 25%  |  |  | 25%  | 
|Luotian
      Lorain  |  | 15%  |  |  | 15%  | 
|Beijing Lorain        |  | 15%  |  |  | 15%  | 
|Shandong
      Lorain |  | 25%  |  |  | 25%  | 

Net Income

Net income increased $0.82 million, or 44.4%, to $2.68 million
for the three months ended June 30, 2010 from $1.86 million for the same period
of 2009. The increase was attributable to increased sales revenue and was
partially offset by increased cost of goods sold, general and administrative
expenses, interest expense and higher income tax in the three months ended June
30, 2010 as compared to the three months ended June 30, 2009.

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Six Months Ended June 30, 2010 Compared to Six Months Ended
June 30, 2009

The following table summarizes the results of our operations
during the six-month periods ended June 30, 2010 and June 30, 2009, respectively
and provides information regarding the dollar and percentage increase or
(decrease) from the six-month period ended June 30, 2009 compared to the
six-month period ended June 30, 2010.

|                                    |  | Six months ended |   |  |                |   |  |                 |  
|----------------------------------- |  | ---------------- | - |  | -------------- | - |  | --------------- | -
|                                    |  | June 30,         |   |  | Dollar($)      |   |  | Percentage (% ) |  
|                                    |  | 2010             |   |  | 2009           |   |  | Increase        |  
|                                    |  | (In US Dollar)   |   |  | (In US Dollar) |   |  | (Decrease)      |  
|Net revenues                        |  | 53,778,530       |   |  | 45,166,461     |   |  | 8,612,069       |  
|Cost of revenues                    |  | (41,335,771      | ) |  | (34,713,370    | ) |  | (6,622,401      | )
|Gross profit                        |  | 12,442,759       |   |  | 10,453,091     |   |  | 1,989,668       |  
|Operating expenses                  |  |                  |   |  |                |   |  |                 |  
|Selling and marketing expenses      |  | (2,567,348       | ) |  | (2,391,164     | ) |  | (176,184        | )
|General and administrative expenses |  | (1,948,662       | ) |  | (1,891,197     | ) |  | (57,465         | )
|                                    |  |                  |   |  |                |   |  |                 |  
|Operating Income                    |  | 7,926,749        |   |  | 6,170,730      |   |  | 1,756,019       |  
|                                    |  |                  |   |  |                |   |  |                 |  
|Government subsidy income           |  | 377,424          |   |  | 196,252        |   |  | 181,172         |  
|Interest and other income           |  | 131,571          |   |  | 208,648        |   |  | (77,077         | )
|Other expenses                      |  | (72,237          | ) |  | (181,603       | ) |  | 109,366         |  
|Interest expense                    |  | (1,943,553       | ) |  | (1,348,651     | ) |  | (594,902        | )
|                                    |  |                  |   |  |                |   |  |                 |  
|Earnings before tax                 |  | 6,419,954        |   |  | 5,045,376      |   |  | 1,374,578       |  
|                                    |  |                  |   |  |                |   |  |                 |  
|Income tax                          |  | (1,529,596       | ) |  | (1,183,478     | ) |  | (346,118        | )
|                                    |  |                  |   |  |                |   |  |                 |  
|Income before minority interests    |  | 4,890,358        |   |  | 3,861,898      |   |  | 1,028,460       |  
|                                    |  |                  |   |  |                |   |  |                 |  
|Minority interests                  |  | (350,214         | ) |  | (250,194       | ) |  | (100,020        | )
|Net income                          |  | 4,540,144        |   |  | 3,611,704      |   |  | 928,440         |  

Revenue

Net Revenues. Our net revenue for the six months ended
June 30, 2010 amounted to $53.8 million, which is approximately $8.6 million or
19.1% more than that of the same period ended on June 30, 2009 where we had
revenue of $45.2 million. During the six months ended June 30, 2010, revenues
from sales of chestnut products increased by $1.3 million, or 4.8%, and revenues
from sales of convenience food products increased by $10.0 million, or 136.3%,
and sales of frozen, canned and bulk food products decreased $2.7 million, or
23.8%, compared to the same period in 2009. The increased revenues were
attributable to the success of the Company's marketing strategies, operational
enhancements and expansion of sales markets, primarily in China. In addition,
through third party agents that we contracted with, our products were sold to a
total of approximately 5,200 supermarkets in China as of June 30, 2010.

Cost of Revenues. Our cost of revenues, which consists
of raw materials, direct labor and manufacturing overhead expenses, was $41.3
million for the six month period ended June 30, 2010, an increase of $6.6
million or 19.1%, as compared to $34.7 million for the six month period ended
June 30, 2009. The cost of revenues sold increased because the sales in the
first six months of 2010 increased as compared to the same period ended June 30,
2009. Approximately 84.8%, or $5.6 million, of this increase was attributable to
an increase in raw material costs, which increased from $32.4 million during the
six months ended June 30, 2009 to $38.0 million, or approximately 17.3%, during
the six months ended June 30, 2010.

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The factors that contributed to the remaining 15.2% increase in cost of revenues were: an increase in wage expense for factory workers, an increase in depreciation expenses for capital equipment and an increase in the cost of consumables used in
conjunction with capital equipment.

Gross Profit. Our gross profit increased $1.99 million, or 19.0% to $12.4 million for the six months ended June 30, 2010 from $10.5 million for the same period in 2009. This increase was attributable to increased sales revenue.

Operating Expenses

Selling and Marketing Expenses. Selling and marketing expenses increased $0.18 million, or 7.4% to $2.6 million for the six months ended June 30, 2010 from $2.4 million for the same period in 2009. This increase mainly resulted
from increased efforts to market our products in our domestic market.

General and Administrative Expenses. General and administrative expenses increased $0.06 million, or 3.0% to $1.95 million for the six months ended June 30, 2010 from $1.90 million for the same period of 2009. The increase of
general and administrative expenses was primarily attributable to increased transportation costs relative to our expanded business, the increased compensation for managerial personnel andexpansion of our distribution channels.

Interest Expenses.We experienced an increase in interest expenses of approximately $0.59 million from approximately $1.35 million to $1.94 million for the six months ended June 30, 2010, compared to the same period in 2009. The
increase was mainly due to the increase in outstanding balance of our bank loans, which was $37.8 million at the end of June 30, 2010, compared to $32.0 million at the end of June 30, 2009.

Income Before Taxation and Minority Interest

Income before taxation and minority interest increased $1.4 million or 27.2% to $6.4 million for the six months ended June 30, 2010 from $5.0 million for the same period of 2009.The increase was primarily a result of the higher
revenue during the six month period ended on June 30, 2010 as compared to 2009.

Income Taxes

Income taxes increased $0.35 million or 29.2% to $1.5 million for the six months ended June 30, 2010 from $1.2 million for the same period of 2009. The increase of tax paid was primarily a result of the increase of income in the first
six months ended June 30, 2010, as compared to the same period in 2009.

Net Income

Net income increased $0.9 million, or 25.7% to $4.5 million for the six months ended June 30, 2010 from $3.6 million for the same period of 2009. The increase was primarily a result of increased revenue, offset by higher interest
expense, cost of revenues, selling and marketing and general administrative expenses.

Liquidity and Capital Resources

As of June 30, 2010, we had cash and cash equivalents (including restricted cash) of $11.1 million. Our cash and cash equivalents decreased by approximately $2.3 million from December 31, 2009, due to cash spent on our inventories. The
following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

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|                                                          |  | Six Months Ended | 
|--------------------------------------------------------- |  | ---------------- | 
|                                                          |  | June 30,         | 
|                                                          |  | 2010             | 
|Net cash provided by (used in)
      operating activities |  | 5,506            | 
|Net cash provided by (used in) investing activities       |  | (9,498)          | 
|Net cash provided by (used in)
      financing activities |  | 2,290            | 
|Net cash flow (outflow)                                   |  | (1,703)          | 

Operating Activities

Net cash provided by operating activities was $5.5 million for
the six months period ended June 30, 2010 and net cash used by operating
activities in the first two quarters of 2009 was approximately $10.3 million.
The increase of approximately $15.8 million in net cash flows provided by
operating activities in the first half of fiscal 2010 was primarily a result of
additional decrease in receivables of approximately $13.5 million and less
decrease in payables of approximately $6.7 million, which was partially offset
by additional increase in inventories of approximately $5.6 million as compared
to the same period in 2009.

Investing Activities

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

Net cash used in investing activities for the six months period
ended June 30, 2010 was $9.5 million, which is an increase of $8.9 million from
net cash used in investing activities of $0.647 million for the same period of
2009. The increase was primarily due to increase in payment for purchase of
equipment and plant in 2010.

Financing Activities

Net cash provided by financing activities for the six months
period ended June 30, 2010 was $2.3 million, which is a decrease of $11.7
million from $13.947 million net cash provided by financing activities during
the same period in 2009. The decrease of the net cash provided by financing
activities was primarily a result of decreased short term bank borrowing in
2010, attributable to repayment of bank loans.

Loan Facilities

As of June 30, 2010, the amounts and maturity dates for our
short-term bank loans are as set forth in the Notes to the Financial Statements.
The total amounts outstanding were $37.8 million as of June 30, 2010, compared
with $35.5 million as of December 31, 2009. We believe that our currently
available working capital, after receiving the aggregate proceeds of the credit
facilities referred to above, should be adequate to sustain our operations at
our current levels through at least the next twelve months.

On May 31, 2010, Junan Hongrun Foodstuff Co. Ltd. (the
Subsidiary), a wholly-owned subsidiary of American Lorain Corporation, entered
into a Loan Agreement (the Agreement) with DEG-Deutsche Investitions-Und
Entwicklungsgesellschaft MBH (the Lender).

Pursuant to the Agreement, the Subsidiary may borrow from the
Lender, in the Lenders sole discretion, up to $15,000,000 by means of a
long-term loan. The Subsidiary intends to use the borrowed funds, if any, in
order to expand its production facilities in Hongrun, China. The loan is secured
by the Subsidiarys assets.

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Subject to certain exceptions, the interest rate for any loans made pursuant to the Agreement shall be at (a) the six month LIBOR rate plus 3.75% for the first disbursement; (b) LIBOR rate determined at the beginning of the respective Interest
Period for all subsequent disbursements; or (c) on the Interest Conversion Date, the interest rate shall be converted into a fixed rate of 3.75% per annum plus the DEG Base Rate (currently 2.04% at August 10, 2010) prevailing two banking days prior
to the Interest Conversion Date. The loan is secured by the assets of the Company.

All outstanding balances under the loan shall be due no later than March 15, 2016. If an Event of Default occurs, the Lender is entitled to cancel the total outstanding commitment of the Loan, demand immediate repayment of the loan or any part
thereof together with accrued interest and other sums due under the Agreement and may terminate the Agreement promptly. A copy of the Agreement is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

Obligations under Material Contracts

We do not have any material contractual obligations as of June 30, 2010.

Critical Accounting Policies

The preparation of financial statements in conformity with United States generally accepted accounting principles requires our management to make assumptions, estimates and judgments that affect the amounts reported in our 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 significant judgments and estimates in the preparation of financial statements,
including the following:

Method of Accounting --We maintain our general ledger and journals with the accrual method accounting for financial reporting purposes. Accounting policies adopted by us conform to generally accepted accounting principles in the United
States and have been consistently applied in the presentation of our 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 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 --Our consolidated financial statements, which include information about our company and our subsidiaries, are compiled in accordance with generally accepted accounting principles in the United States. All
significant inter-company accounts and transactions have been eliminated. Our consolidated financial statements include 100% of assets, liabilities, and net income or loss of our wholly-owned subsidiaries. Ownership interests of minority investors
are recorded as minority interests.

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As of June 30, 2010, the details pertaining to our subsidiaries were as follows:

|                                  |  | Place of       |  |  | Attributable Equity |  |   | Registered | 
|--------------------------------- |  | -------------- |  |  | ------------------- |  | - | ---------- | 
|***Name of Company***             |  | Incorporation  |  |  | Interest %          |  |   | Capital    | 
|Shandong Lorain Co., Ltd          |  | PRC            |  |  | 80.2                |  | $ | 14,813,618 | 
|Luotian Lorain Co., Ltd           |  | PRC            |  |  | 100                 |  | $ | 3,720,119  | 
|Junan Hongrun Foodstuff Co., Ltd  |  | PRC            |  |  | 100                 |  | $ | 28,816,497 | 
|Beijing Lorain Co., Ltd           |  | PRC            |  |  | 100                 |  | $ | 1,468,731  | 
|Dongguan Lorain Co,,Ltd           |  | PRC            |  |  | 100                 |  | $ | 146,873    | 
|International Lorain Holding Inc. |  | Cayman Islands |  |  | 100                 |  | $ | 37,285,063 | 

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 period, there was no impairment loss.

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, no other
significant obligations of ours exist and collectability 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. 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 June 2009, FASB issued FASB Statement No. 166, Accounting
for Transfers for Financial Assets (FASB ASC 860 Transfers and Servicing) and
FASB Statement No. 167 (FASB ASC 810 Consolidation), a revision to FASB
Interpretation No. 46 (Revised December 2003), Consolidation of Variable
Interest Entities (FASB ASC 810 Consolidation).

Statement 166 is a revision to FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities (FASB ASC 860 Transfers and Servicing), and will require more
information about transfers of financial assets, including securitization
transactions, and where entities have continuing exposure to the risks related
to transferred financial assets. It eliminates the concept of a qualifying
special-purpose entity, changes the requirements for derecognizing financial
assets, and requires additional disclosures. Statement No. 166 (FASB ASC 860
Transfers and Servicing) must be applied as of the beginning of each reporting
entitys first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter. Earlier application is prohibited. This
Statement must be applied to transfers occurring on or after the effective date.
The Company is still evaluating the impact of the above pronouncement.

Statement 167 is a revision to FASB Interpretation No. 46
(Revised December 2003), Consolidation of Variable Interest Entities (FASB ASC
810 Consolidation), and changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. The
determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entitys purpose and design and the reporting entitys ability to direct the activities of the other entity
that most significantly impact the other entitys economic performance. Statement No. 167 (FASB ASC 810 Consolidation) shall be effective as of the beginning of each reporting entitys first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is still evaluating the impact of the above pronouncement.

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On June 30, 2009, FASB issued FASB Statement No. 168, Accounting Standards Codification ( FASB ASC 105 Generally Accepted Accounting Principles) a replacement of FASB Statement No. 162 the Hierarchy of Generally Accepted Accounting Principles.
On the effective date of this standard, FASB Accounting Standards Codification (ASC) became the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and
Exchange Commission (SEC). This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. If an accounting change results from the application of this guidance, an entity should disclose
the nature and reason for the change in accounting principle in their financial statements. This new standard flattens the GAAP hierarchy to two levels: one that is authoritative (in FASB ASC) and one that is non-authoritative (not in FASB ASC).
Exceptions include all rules and interpretive releases of the SEC under the authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants, and certain grandfathered guidance having an effective date before March
15, 1992. Statement No. 168 is the final standard that will be issued by FASB in that form. There will no longer be, for example, accounting standards in the form of statements, staff positions, Emerging Issues Task Force (EITF) abstracts, or AICPA
Accounting Statements of Position. The Company has adopted the new accounting standard. There was no material impact on the financial statements presented herein.

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2010. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2010, our disclosure controls and procedures were effective.

Changes in Internal Controls over Financial Reporting.

During the fiscal quarter ended June 30, 2010, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Not applicable.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. REMOVED AND RESERVED

Not applicable

ITEM 5. OTHER INFORMATION

In the second quarter of 2010, American Lorains subsidiary
Junan Hongrun Foodstuff Co., Ltd. signed a loan agreement with a German
development bank, Deutsche Investitions-und Entwicklungsgesellschaft MBH
("DEG"), under which Junan Hongrun can borrow up to $15 million in the lenders
sole discretion. The loan is a six-year term loan with an interest rate of US
dollar six-month LIBOR plus 3.75% . It is collateralized by the subsidiarys
assets. Borrowing of the funds is expected to commence during second half of
2010, upon Junan Hongruns fulfillment of the conditions precedent as set in the
loan agreement.

ITEM 6. EXHIBITS

|Exhibit | Description                                                                                                                                                       
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |                                                                                                                                                                   
|31.1    | Certification of Principal Executive Officer
      filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|        |                                                                                                                                                                   
|31.2    | Certification of Principal Financial Officer
      filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|        |                                                                                                                                                                   
|32.1    | Certification of Principal Executive Officer
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
|        |                                                                                                                                                                   
|32.2    | Certification of Principal Financial Officer
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
|        |                                                                                                                                                                   
|10.1    | Loan Agreement , dated May 31, 2010, between
      Junan Hongrun Foodstuff Co. Ltd. and DEG-Deutsche Investitions-Und
      Entwicklungsgesellschaft MBH          

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SIGNATURES

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

Date: August 10, 2010

| | AMERICAN LORAIN CORPORATION  
| | -----------------------------
| |                              
| |                              
| |                              
| | /s/ Si Chen                  
| | Si Chen                      
| | Chief
      Executive Officer
| |                              
| |                              
| |                              
| | /s/ Yilun Jin                
| | Yilun Jin                    
| | Chief
      Financial Officer

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