UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, 2008

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

Commission File No. 0-31619

AMERICAN LORAIN
CORPORATION

(Exact name of registrant as specified in its charter)

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



Beihuan Road
Junan County
Shandong, China 276600(Address, including zip code, of principal executive offices)(+86) 539-7317959
(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 Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes QNo  ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See 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 Q

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

Yes  ̈        
No Q

The numbers of shares outstanding of each of the issuer's classes of common equity, as of August 14, 2008, are as follows:

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

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Table of Contents

|                                 |                                                                                           | Page
|-------------------------------- | ----------------------------------------------------------------------------------------- | ----
|                                 |                                                                                           |     
|PART I FINANCIAL
    INFORMATION | 1                                                                                        
|                                 |                                                                                           |     
|ITEM 1.                          | FINANCIAL STATEMENTS                                                                      | 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                                                                   | 36  
|                                 |                                                                                           |     
|PART II OTHER
    INFORMATION    | 36                                                                                       
|                                 |                                                                                           |     
|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.                          | SUBMISSION OF MATTERS TO A VOTE OF
    SECURITY HOLDERS                                   | 36  
|                                 |                                                                                           |     
|ITEM 5.                          | OTHER INFORMATION                                                                         | 36  
|                                 |                                                                                           |     
|ITEM 6.                          | EXHIBITS                                                                                  | 37  
|                                 |                                                                                           |     
|SIGNATURES                       |                                                                                           |     



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PART IFINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS.

AMERICAN LORAIN CORPORATION 
CONSOLIDATED BALANCE SHEETSAS OF JUNE 30, 2008 AND DECEMBER 31, 2007 (Stated in U.S. Dollars)

|                                                                                                                                                  |         |   |             |   | (Audited)  
|------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | - | ----------- | - | -----------
|                                                                                                                                                  | Note    |   | 6/30/2008   |   | 12/31/2007 
|ASSETS                                                                                                                                            |         |   |             |   |            
|Current Assets                                                                                                                                    |         |   |             |   |            
|Cash and Cash equivalents                                                                                                                         | 2(m)    | $ | 8,494,358   | $ | 6,769,973  
|Restricted Cash                                                                                                                                   | 3       |   | 4,252,007   |   | 2,021,839  
|Short-term Investment                                                                                                                             |         |   | 7,276       |   | 7,246      
|Trade accounts receivable                                                                                                                         | 4       |   | 20,730,615  |   | 32,859,688 
|Other receivables                                                                                                                                 |         |   | 7,266,259   |   | 7,552,976  
|Inventory                                                                                                                                         | 2(j), 5 |   | 19,358,049  |   | 17,903,344 
|Advance to Suppliers                                                                                                                              |         |   | 3,615,626   |   | 5,357,951  
|Prepaid Expenses and Taxes                                                                                                                        |         |   | 2,143,719   |   | 916,774    
|Total Current Assets                                                                                                                              |         | $ | 65,867,909  | $ | 73,389,790 
|                                                                                                                                                  |         |   |             |   |            
|Non-Current Assets                                                                                                                                |         |   |             |   |            
|Long-term Investment                                                                                                                              |         |   | 1,589,355   |   | -          
|Property, plant and equipment, net                                                                                                                | 2(f), 6 |   | 29,442,995  |   | 24,022,181 
|Land use rights, net                                                                                                                              | 7       |   | 3,995,251   |   | 3,047,021  
|                                                                                                                                                  |         |   |             |   |            
|TOTAL ASSETS                                                                                                                                      |         | $ | 100,895,510 | $ | 100,458,992
|                                                                                                                                                  |         |   |             |   |            
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                              |         |  
|Current Liabilities                                                                                                                               |         |   |             |   |            
|Short-term bank loans                                                                                                                             | 8       | $ | 24,944,797  | $ | 24,077,504 
|Notes payable                                                                                                                                     | 9       |   | 6,548,503   |   | 2,734,444  
|Accounts payable                                                                                                                                  |         |   | 2,607,516   |   | 6,251,833  
|Income tax payable                                                                                                                                |         |   | 732,134     |   | 1,121,528  
|Accrued liabilities and other payables                                                                                                            |         |   | 6,728,839   |   | 16,784,108 
|Customers deposits                                                                                                                                |         |   | 1,994,139   |   | 957,642    
|Total Current Liabilities                                                                                                                         |         | $ | 43,555,927  | $ | 51,927,058 
|                                                                                                                                                  |         |   |             |   |            
|Long-term Liabilities                                                                                                                             |         |   |             |   |            
|Long-term bank loans                                                                                                                              | 10      |   | 568,221     |   | 102,542    
|                                                                                                                                                  |         |   |             |   |            
|TOTAL LIABILITIES                                                                                                                                 |         | $ | 44,124,148  | $ | 52,029,600 
|                                                                                                                                                  |         |   |             |   |            
|                                                                                                                                                  |         |   |             |   | (Audited)  
|                                                                                                                                                  | Note    |   | 6/30/2008   |   | 12/31/2007 
|                                                                                                                                                  |         |   |             |   |            
|Minority interests                                                                                                                                | 11      | $ | 4,332,557   | $ | 3,887,021  
|                                                                                                                                                  |         |   |             |   |            
|STOCKHOLDERS' EQUITY                                                                                                                              |         |   |             |   |            
|Common Stock, $0.001 par value, 200,000,000 shares authorized; 24,923,178 shares issued and outstanding as of June 30, 2008 and December 31, 2007 | 12      |   | 24,923      |   | 24,923     
|Additional paid-in-capital                                                                                                                        |         |   | 24,187,268  |   | 24,187,268 
|Statutory reserves                                                                                                                                |         |   | 6,106,809   |   | 4,497,647  
|Retained earnings                                                                                                                                 |         |   | 17,834,901  |   | 13,985,824 
|Accumulated other comprehensive income                                                                                                            |         |   | 4,284,904   |   | 1,846,708  
|                                                                                                                                                  |         | $ | 52,438,805  | $ | 44,542,370 
|                                                                                                                                                  |         |   |             |   |            
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                        |         | $ | 100,895,510 | $ | 100,458,992

1



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AMERICA LORAIN CORPORATION 
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30, 2008 AND 2007
(Stated in US Dollars)

|                                    |          |   | Three months ended June 30, |   | Six months ended June 30,
|----------------------------------- | -------- | - | --------------------------- | - | -------------------------
|                                    | Note     |   | 2008                        |   | 2007                     
|Net revenues                        |          | $ | 21,524,427                  | $ | 13,343,209               
|Cost of revenues                    |          |   | (16,338,272)                |   | (10,388,680)             
|Gross profit                        |          |   | 5,186,155                   |   | 2,954,529                
|                                    |          |   |                             |   |                          
|Operating expenses                  |          |   |                             |   |                          
|Selling and marketing expenses      |          |   | (616,050)                   |   | (296,917)                
|General and administrative expenses |          |   | (1,087,894)                 |   | (460,141)                
|                                    |          |   |                             |   |                          
|Operating Income                    |          |   | 3,482,211                   |   | 2,197,471                
|                                    |          |   |                             |   |                          
|Investment income                   |          |   | (2,790)                     |   | -                        
|Government subsidy income           |          |   | 4,492                       |   | (7,721)                  
|Interest and other income           |          |   | 71,505                      |   | 7,234                    
|Other expenses                      |          |   | (94,819)                    |   | (1,329,203)              
|Interest expense                    |          |   | (683,401)                   |   | (737,611)                
|                                    |          |   |                             |   |                          
|Earnings before tax                 |          |   | 2,777,199                   |   | 130,170                  
|                                    |          |   |                             |   |                          
|Income tax                          | 2(r), 13 |   | (493,194)                   |   | (285,597)                
|                                    |          |   |                             |   |                          
|Income before minority interests    |          |   | 2,284,005                   |   | (155,427)                
|                                    |          |   |                             |   |                          
|Minority interests                  |          |   | (166,631)                   |   | (54,442)                 
|                                    |          |   |                             |   |                          
|Net income                          |          | $ | 2,117,374                   | $ | (209,869)                
|Earnings per share                  | 2(v)     |   |                             |   |                          
|-
Basic                             |          | $ | 0.0850                      | $ | (0.00746)                
|-
Diluted                           |          | $ | 0.0836                      | $ | (0.00746)                
|                                    |          |   |                             |   |                          
|Weighted average shares outstanding |          |   |                             |   |                          
|-
Basic                             |          |   | 24,923,178                  |   | 22,437,703               
|-
Diluted                           |          |   | 25,320,677                  |   | 23,255,647               



2



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AMERICA LORAIN CORPORATION 
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHS AND THREE-MONTHS ENDED JUNE 30, 2008 AND 2007
(Stated in US Dollars)



|                                                     |   | Three months ended June 30, |   | Six months ended June 30,
|---------------------------------------------------- | - | --------------------------- | - | -------------------------
|                                                     |   | 2008                        |   | 2007                     
|Cash flows from operating activities                 |   |                             |   |                          
|Net income                                           | $ | 2,111,375                   | $ | (244,510)                
|Minority interest                                    |   | 166,631                     |   | 54,442                   
|Depreciation                                         |   | 152,589                     |   | 185,240                  
|Amortization                                         |   | 170,289                     |   | 5,981                    
|(Increase)/decrease in accounts & other receivables  |   | 5,344,818                   |   | (6,173,644)              
|(Increase)/decrease in advances to suppliers         |   | 1,742,325                   |   | -                        
|(Increase)/decrease in inventories                   |   | (4,991,298)                 |   | (2,565,667)              
|(Increase)/decrease in prepaid tax                   |   | (1,226,945)                 |   | -                        
|Increase/(decrease) in accounts and other payables   |   | (3,687,836)                 |   | (7,514,109)              
|Increase/(decrease) in tax payable                   |   | (389,393)                   |   | -                        
|Increase/(decrease) in customer deposit              |   | 1,036,497                   |   | -                        
|Net cash (used in)/provided by operating activities  |   | 429,052                     |   | (16,252,267)             
|                                                     |   |                             |   |                          
|Cash flows from investing activities                 |   |                             |   |                          
|Purchase of plant and equipment                      |   | (2,420,849)                 |   | -                        
|Sale of plant and equipment                          |   | -                           |   | (887,995)                
|Purchase of biological assets                        |   | 115,731                     |   | (1,031,299)              
|Payment of construction in progress                  |   | 938,022                     |   | (777,177)                
|(Increase)/decrease in restricted cash               |   | (2,264,890)                 |   | (6,209,092)              
|Payment of land use rights                           |   | (816,295)                   |   | 1,081,811                
|Investments in securities                            |   | (816,443)                   |   | 19,930                   
|Contribution to capital reserve                      |   | 1,609,162                   |   | -                        
|Net cash used in investing activities                |   | (3,655,562)                 |   | (7,803,822)              
|                                                     |   |                             |   |                          
|Cash flows from financing activities                 |   |                             |   |                          
|Bank borrowings                                      |   | 266,084                     |   | -                        
|Bank repayment                                       |   | -                           |   | (2,618,282)              
|Notes payable                                        |   | 3,814,058                   |   | -                        
|Issue of common stock                                |   | -                           |   | 103,679                  
|Increase in additional paid-in capital               |   | -                           |   | 20,260,623               
|Net cash provided by/(used in) financing activities  |   | 4,080,142                   |   | 17,746,020               
|                                                     |   |                             |   |                          
|Net Increase/(decrease) of Cash and Cash Equivalents |   | 853,632                     |   | (6,310,069)              
|                                                     |   |                             |   |                          
|Effect of foreign currency translation on cash       |   |                             |   |                          
|and cash equivalents                                 |   | 1,378,229                   |   | 385,932                  
|                                                     |   |                             |   |                          
|Cash and cash equivalentsbeginning of year          |   | 6,262,497                   |   | 8,450,565                
|                                                     |   |                             |   |                          
|Cash and cash equivalentsend of year                | $ | 8,494,358                   | $ | 2,526,428                
|                                                     |   |                             |   |                          
|Supplementary cash flow information:                 |   |                             |   |                          
|Interest received                                    |   | 25,710                      |   | 14,134                   
|Interest paid                                        |   | 607,641                     |   | 384,206                  
|Taxes paid                                           | $ | 374,134                     | $ | 369,837                  



3



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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(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
opportunity to become an acquiree of a reverse-merger deal.

(b)

Organizational history of International
Lorain Holding Inc. and its subsidiaries

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

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

(c)

Reverse-merger

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

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

4



---

Accordingly, the accompanying
consolidated financial statements are those of the accounting acquirer, ILH. The
historical stockholders' equity of the accounting acquirer prior to the share
exchange has been retroactively restated as if the share exchange transaction
occurred as of the beginning of the first period presented. See also Note 14
Capitalization.(d)
Business
activitiesThe Company develops, manufactures,
and sells convenience foods (such as cut fruit and premixed salads, which are
known as lightly processed; Ready-to-Cook (or "RTC") meals; Ready-to-Eat (or
"RTE") meals and Meals Ready-to-Eat (or "MRE"); chestnut products; and frozen,
canned, and bulk foods, in hundreds of varieties. The Company operates through
indirect Chinese subsidiaries. The products are sold in 19 provinces and
administrative regions in China and 21 foreign countries. Foodproducts are
categorized into three types: (1) chestnut products, (2) convenience food, and
(3) frozen, canned, and bulk food.
2.
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(a)
Method of accountingThe Company maintains its general
ledger and journals with the accrual method accounting for financial reporting
purposes. The financial statements and notes are representations of management.
Accounting policies adopted by the Company conform to generally accepted
accounting principles in the United States of America and have been consistently
applied in the presentation of financial statements, which are compiled on the
accrual basis of accounting.(b)
Principles of consolidationThe 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, 2008, the detailed
identities of the consolidating subsidiaries are as follows: -

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


(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.

5



---

The Company's operations are
conducted in the PRC. Accordingly, the Company's business, financial condition
and results of operations may be influenced by the political, economic and legal
environment in the PRC, and by the general state of the PRC economy.
The Company's operations in the PRC
are subject to special considerations and significant risks not typically
associated with companies in North America and Western Europe. These include
risks associated with, among others, the political, economic and legal
environment and foreign currency exchange. The Company's results may be
adversely affected by changes in the political and social conditions in the PRC,
and by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates
and methods of taxation, among other things.(e)

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.

6



---

(h)

Construction in progress

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

(i)

Investment securities

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

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

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

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.

7



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(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 pro forma 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 reporting purposes and
the amounts used for income tax purposes. A valuation allowance is provided for
deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future realization
is uncertain.

(s)

Statutory reserves

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

(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.

6/30/2008
  
  3/31/2008
  
  12/31/2007
  
  6/30/2007
  
  3/31/2007Year end RMB : USD
  6.8718
  
  7.0222
  
  7.3141
  
  7.6248
  
  7.7409Average yearly RMB : USD
  7.07263
  
  7.17568
  
  7.6172
  
  7.72999
  
  7.77136




8



---

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

Revenue
recognition

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

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

(v)

Earnings per share

Basic earnings per share is computed
by dividing net income by the weighted average number of ordinary shares
outstanding during the period. Diluted earnings per share is computed by
dividing net income by the sum of the weighted average number of ordinary shares
outstanding and dilutive potential ordinary shares during the years. During the
periods ended June 30, 2008 and June 30, 2007, no dilutive potential ordinary
shares were issued.

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

(w)

Commitments and contingencies

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

(x)

Comprehensive income

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

9



---

(y)

Recent
accounting pronouncements

In March 2008, the FASB issued SFAS
No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 applies to all
derivative instruments and related hedged items accounted for under SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 161 requires entities to provide greater transparency about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity's financial position, results of operations and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.

In May 2008, the FASB issued SFAS
No. 162, "The Hierarchy of Generally Accepted

Accounting Principles" ("SFAS 162").
SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy). Statement 162 will become
effective 60 days following the SEC's approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles."

In May 2008, the FASB issued FSP
Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)" ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer's
non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years
beginning after December 15, 2008 on a retroactive basis.

The Company is currently evaluating
the potential impact, if any, of the adoption of the above recent accounting
pronouncements on its consolidated results of operations and financial
condition.



10



---

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

6/30/2008
  
  12/31/2007Trade Account Receivable
  
  $   21,046,309
  
  $  33,031,997Less:Allowance for Doubtful Accounts
  
  (315,694)
  
  (172,309)$   20,730,615
  
  $  32,859,6886/30/2008
  
  12/31/2007Allowance for Bad Debt:Beginning Balance
  
  $        172,309
  
  $       226,881Additions to Allowance
  
  143,385
  
  -Less: Bad Debt Written-off
  
  -
  
  (54,572)$        315,694
  
  $       172,309


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

5.

INVENTORY

Inventories at June 30, 2008 and
December 31, 2007 consisted of the following:

6/30/2008
  
  12/31/2007Raw Material
  
  $     11,220,624
  
  $    5,225,248Finished Goods
  
  8,137,425
  
  12,678,096$     19,358,049
  
  $  17,903,344




11



---



6.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment at
June 30, 2008 and December 31, 2007 consisted of the following:

6/30/2008
  
  12/31/2007At Cost:Buildings
  
  $   20,609,716
  
  $  15,547,205Biological Assets
  
  2,745,052
  
  2,784,136Machinery and Equipment
  
  6,408,913
  
  5,732,776Office Equipment
  
  351,062
  
  28,520Motor Vehicles
  
  437,353
  
  658,547$   30,552,096
  
  $  24,751,184Less:Accumulated DepreciationBuildings
  
  (944,742)
  
  (698,732)Biological Assets
  
  (0)
  
  (1,954,257)Machinery and Equipment
  
  (2,340,387)
  
  (15,643)Office Equipment
  
  (194,200)
  
  (318,468)Motor Vehicles
  
  (203,002)
  
  (2,987,100)(3,682,331)
  
  (698,732)Construction in Progress
  
  2,573,230
  
  2,258,097$   29,442,995
  
  $  24,022,181


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

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

7.

LAND
USE RIGHTS, NET

Land Use Rights at June 30, 2008 and
December 31, 2007 consisted of the following: -

6/30/2008
  
  12/31/2007Land Use Rights, at cost
  
  $     4,340,154
  
  $    3,173,931Less:Accumulated amortization
  
  (344,903)
  
  (126,910)$     3,995,251
  
  $    3,047,021


Land use rights represent the prepaid
land use right. The PRC government owns the land on which the Company's
corporate campus is being constructed.

12



---



8.

SHORT-TERM DEBTS

6/30/2008
  
  12/31/2007Loans from Junan County Construction Bank·Interest rate at 6.264% per annum due 8/31/2007
  $
  436,567
  $
  410,167·Interest rate at 6.264% per annum due 9/7/2007
  
  365,261
  
  343,173·Interest rate at 7.776% per annum due 12/18/2007
  
  
  
  261,139·Interest rate at 7.776% per annum due 12/18/2007
  
  
  
  355,478·Interest rate at 8.541% per annum due 3/5/2008
  
  
  
  355,478·Interest rate at 8.892% per annum due 7/23/2008
  
  349,253
  
  328,133·Interest rate at 6.314% per annum due 9/17/2008
  
  273,218
  
  256,696·Interest rate at 7.884% per annum due 6/11/2008
  
  87,140
  
  505,872·Interest rate at 7.884% per annum due 7/29/2008
  
  261,940·Interest rate at 7.884% per annum due 7/29/2008
  
  771,268·Interest rate at 7.884% per annum due 8/8/2008
  
  582,089·Interest rate at 7.884% per annum due 8/8/2008
  
  334,701·Interest rate at 7.884% per annum due 8/28/2008
  
  669,402·Interest rate at 7.884% per annum due 8/27/2008
  
  844,029·Interest rate at 7.884% per annum due 9/18/2008
  
  451,119Loan from Junan County Agriculture Bank·Interest rate at 10.251% per annum due 1/11/2008
  $
  
  $
  231,061·Interest rate at 10.557% per annum due 1/11/2008
  
  
  
  345,907·Interest rate at 11.016% per annum due 2/21/2008
  
  
  
  191,411·Interest rate at 11.169% per annum due 6/7/2008
  
  
  
  123,050·Interest rate at 11.169% per annum due 6/7/2008
  
  
  
  41,017·Interest rate at 11.169% per annum due 6/29/2008
  
  
  
  347,274·Interest rate at 11.169% per annum due 6/29/2008
  
  
  
  109,378·Interest rate at 11.169% per annum due 7/3/2008
  
  
  
  505,872·Interest rate at 11.169% per annum due 8/13/2008
  
  1,018,656
  
  1,476,540·Interest rate at 11.169% per annum due 9/24/2008
  
  945,895·Interest rate at 11.169% per annum due7/18/2008
  
  334,701·Interest rate at 7.884% per annum due 7/18/2008
  
  
  
  273,444·Interest rate at 11.628% per annum due 7/25/2008
  
  
  
  191,411·Interest rate at 11.628% per annum due 8/1/2008
  
  87,313
  
  82,033·Interest rate at 12.393% per annum due 10/30/2008
  
  436,567
  
  410,167·Interest rate at 12.393% per annum due 11/11/2008
  
  254,664
  
  239,264·Interest rate at 12.393% per annum due 11/14/2008
  
  218,283
  
  205,083·Interest rate at 12.393% per annum due 11/14/2008
  
  
  
  199,614·Interest rate at 12.393% per annum due 11/22/2008
  
  436,567
  
  410,167·Interest rate at 12.393% per annum due 11/29/2008
  
  305,597
  
  287,117·Interest rate at 12.393% per annum due 12/4/2008
  
  436,567
  
  410,167·Interest rate at 12.393% per annum due 12/13/2008
  
  436,567
  
  410,167




13



---



6/30/2008
  
  12/31/2007·Interest rate at 12.699% per annum due 1/4/2009
  
  
  
  -·Interest rate at 11.169% per annum due 5/20/2008
  
  
  
  -·Interest rate at 12.699% per annum due 1/4/2009
  
  58,209
  
  -·Interest rate at 12.699% per annum due 1/4/2009
  
  87,313
  
  -·Interest rate at 12.699% per annum due 1/4/2009
  
  58,209
  
  -·Interest rate at 11.169% per annum due 1/1/2009
  
  116,418·Interest rate at 11.169% per annum due 7/18/2008
  
  
  
  -·Interest rate at 11.169% per annum due 6/30/2008
  
  
  
  -·Interest rate at 11.169% per annum due 2/1/2009
  
  
  
  -·Interest rate at 12.70% per annum due 3/20/2009
  
  58,209
  
  -·Interest rate at 11.169% per annum due 5/6/2008
  
  
  
  -·Interest rate at 11.169% per annum due 6/26/2008
  
  
  
  -·Interest rate at 11.169% per annum due 6/12/2008
  
  
  
  -·Interest rate at 11.169% per annum due 6/19/2008
  
  
  
  -·Interest rate at 11.169% per annum due 6/19/2008
  
  
  
  -Loan from Junan County Industrial and Commercial Bank·Interest rate at 6.120% per annum due 1/11/2007
  $
  
  $
  546,889·Interest rate at 8.424% per annum due 3/7/2007
  
  
  
  806,661·Interest rate at 6.120% per annum due 11/10/2007
  
  
  
  136,722·Interest rate at 8.073% per annum due 12/7/2007
  
  
  
  1,278,353·Interest rate at 7.956% per annum due 1/18/2008
  
  
  
  478,528·Interest rate at 7.956% per annum due 1/18/2008
  
  
  
  546,889·Interest rate at 6.9545% per annum due 2/8/2008
  
  
  
  604,299·Interest rate at 6.570% per annum due 2/8/2008
  
  
  
  546,889·Interest rate at 7.956% per annum due 3/5//2008
  
  
  
  1,367,222·Interest rate at 8.892% per annum due 3/7/2008
  
  
  
  410,167·Interest rate at 6.12% per annum due 6/30/2008
  
  85,752
  
  706,766·Interest rate at 7.290% per annum due 6/30/2008
  
  
  
  232,428·Interest rate at 9.71% per annum due 7/10/2008
  
  94,589
  
  -·Interest rate at 9.71% per annum due 8/8/2008
  
  49,478
  
  -·Interest rate at 8.541% per annum due 4/20/2008
  
  
  
  -·Interest rate at 9.711% per annum due 12/22/2008
  
  203,731
  
  -·Interest rate at 6.57% per annum due 4/17/2008
  
  
  
  -·Interest rate at 8.541% per annum due 4/30/2008
  
  
  
  -·Interest rate at 7.47% per annum due 11/1/2008
  
  407,462
  
  -·Interest rate at 7.47% per annum due 12/1/2008
  
  582,089
  
  -·Interest rate at 8.541% per annum due 6/4/2008
  
  
  
  -·Interest rate at LIBOR+1.5% per annum due 6/6/2008·Interest rate at LIBOR+1.5% per annum due 6/13/2008·Interest rate at 8.541% per annum due 10/12/2008
  
  392,910




14



---



6/30/2008
  
  12/31/2007·Interest rate at 8.54% per annum due 7/29/2008
  
  72,761Loan from Junan County Merchants Bank·Interest rate at 6.210% per annum due 3/13/2008
  $
  
  $
  1,367,222Loan from Junan County Agricultural Financial Institution·Interest rate at 12.15% per annum due 5/20/2008
  $
  
  $
  25,977·Interest rate at 12.420% per annum due 6/20/2008
  
  
  
  68,361·Interest rate at 10.935% per annum due 10/1/2008
  
  
  
  2,597,722Loan from Linyi Commercial Bank·Interest rate at 10.71% per annum due 2/9/2008
  $
  
  $
  497,221·Interest rate at 13.73% per annum due 12/25/2008
  
  145,522
  
  136,722·Interest rate at 13.73% per annum due 1/5/2009
  
  683,955
  
  -·Interest rate at 13.73% per annum due 1/12/2009
  
  654,850
  
  -Loan from Junan Agricultural Development Bank·Interest rate at 7.290% per annum due 9/26/2008
  $
  1,455,223
  $·Interest rate at 6.570% per annum due 9/3/2008
  
  87,314·Interest rate at 6.570% per annum due 9/12/2008
  
  97,500Loan from China Agricultural Bank, Luotian Branch·Interest rate at 7.722% per annum due 8/28/2008
  $
  742,164
  $
  1,039,089Bank of China, Junan Branch·Interest rate at 7.500% per annum due 5/19/2009
  $
  7,288
  $
  9,815·Interest rate at 7.840% per annum due 5/17/2009
  
  
  
  -International Trust Co., Ltd.·Interest rate at 5.76% per annum due 6/13/2008
  $
  1,455,223
  $
  1,367,222United Commercial Bank, China Branch·Interest rate at 5.494% per annum due 1/14/2009
  $
  1,044,850
  $
  -Luotian Agricultural Cooperation Development Office·Interest rate at 2.1% per annum due 12/11/2011
  $
  
  $
  -Jinan Merchants Bank, Jinan County·Interest rate at 15.00% per annum due 10/3/2008
  $
  1,455,223
  $Shenzhen Develop Bank·Interest rate at 7.47% per annum due 11/15/2008
  $
  1,455,223
  $


15



---



6/30/2008
  
  12/31/2007Credit Union, Beijing·Interest rate at 10.935% per annum due 9/29/2008
  
  2,764,923Bank of Beijing·Interest rate at 7.884% per annum due 7/18/2008
  
  291,045$
  24,944,797
  $
  24,077,504


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

All overdue loans were extended by
its financial institution.





16



---

9.

NOTES
PAYABLE

The notes payable, which are
denominated in the functional currency of Renminbi, at June 30, 2008 and
December 31, 2007, are presented in US dollars as follows:

6/30/2008
  
  12/31/2007Notes to Industrial and Commercial Bank,•
Bank commission charge at 3.99% due December 20, 2007
  $
  
  $
  546,888•
Bank commission charge at 3.99% due December 12, 2007
  
  
  
  1,093,778•
Bank commission charge at 3.99% due December 18, 2007
  
  
  
  1,093,778•
Bank commission charge at 7.24% due September 4, 2008
  
  582,089
  
  -•
Bank commission charge at 7.24% due September 4, 2008
  
  582,089
  
  -•
Bank commission charge at 7.24% due September 4, 2008
  
  291,045
  
  -•
Bank commission charge at 7.20% due September 19, 2008
  
  582,089
  
  -•
Bank commission charge at 7.20% due September 19, 2008
  
  582,089
  
  -•
Bank commission charge at 7.20% due September 19, 2008
  
  291,045
  
  -Notes to Jinan Merchant Bank•
Bank commission charge at 0.0056%, due October 3, 2008
  
  1,455,223
  
  -Notes to Shenzhen Develop Bank•
Bank commission charge at 0.0043%, due November 15, 2008
  
  2,182,834
  
  -$
  6,548,503
  $
  2,734,444


All overdue notes were extended by
its financial institution.

17



---

10.

LONG-TERM DEBTS

6/30/2008
  
  12/31/2007Loan from Agricultural Development Luotian Government,•
Interest rate at 0.67% per annum due 12/11/2010
  $
  109,142
  $
  102,542•
Interest rate at 2.10% per annum due 12/11/2011
  
  25,466Loan from United Commercial Bank, China Branch•
Interest rate at 5.494% per annum due 1/14/2011
  
  433,613
  
  -Less: Current maturities of long-term debts
  
  
  
  -$
  568,221
  $
  102,542


Interest expenses for long-term debt
were $11,189 and $687 for the period ended June 30, 2008 and the year ended
December 31, 2007.

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



18



---

11.

MINORITY INTERESTS

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

12.

CAPITALIZATION

As a result of the reverse-merger on
May 3, 2007 involving an exchange of shares, the total number of 24,923,178
shares of the Company's common stock issued and outstanding at June 30, 2008 and
December 31, 2007 is depicted in the following table:

Name of Shareholder
  Number of Share
  
  Common
Stock Capital
  
  Additional
Paid-in CapitalShareholders of International Lorain Holding Inc. (697,663 Series B preferred shares converted to common shares at one for 23.375
  Split
  16,307,872
  
  $          16,308
  
  $                   -Halter Financial Investments LP and other (100,000 Series A preferred shares converted to common shares:100,000 x 428.56 = 42,856,000 / 32.84)Reversed-split
  1,304,992
  
  1,305
  
  -Original Shareholders of Millennium Quest Inc.(Shell) 10,508,643 shares / 32.84reverse-split adjusted for round-down
  319,913
  
  320
  
  -Original additional paid-in capital from the4 PRC subsidiaries
  -
  
  -
  
  6,846,620Issuance of common stock for cash
  6,990,401
  
  6,990
  
  17,340,64824,923,178
  
  $          24,923
  
  $  24,187,268




19



---

13.

INCOME TAXES

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

6/30/2008
  
  6/30/2007Effect of tax exemption granted
  $
  5,033,124
  $
  2,054,766Tax Rate
  
  25%
  
  33%Tax at the income tax rate
  
  1,258,281
  
  678,073Effect of tax exemption granted
  
  374,706
  
  62,496Income tax
  $
  883,575
  $
  615,577


Per Share Effect of Tax Exemption6/30/2008
  
  6/30/2007Effect of tax exemption granted
  $
  374,706
  $
  62,496Weighted-Average Shares Outstanding
  
  24,923,179
  
  35,111,908Per share effect
  $
  0.0151
  $
  0.0018


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

Based on the background of each
constituent of our group, the income tax rates applicable to the four
constituents for 2007, 2008, and 2009 are depicted in the following table.

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




20



---

14.

SALES
BY PRODUCT TYPE

Sales by categories of product at
June 30, as follow: -

Category
  
  6/30/2008
  
  6/30/2007Chestnut
  $
  23,358,314
  $
  13,825,482Meat
  
  4,710,370
  
  1,051,366Vegetable
  
  10,863,603
  
  10,321,464Others
  
  20,440
  
  43,709Total
  $
  38,952,726
  $
  25,242,021


Revenue by geography at June 30, was
as follows: -

Country
  
  6/30/2008
  
  6/30/2007Belgium
  $
  839,578
  $
  570,658Canada
  
  0
  
  13,832Chile
  
  72,424China
  
  30,668,181
  
  18,240,283France
  
  380,509
  
  32,513Germany
  
  33,355
  
  38,518Hong Kong
  
  69,501
  
  24,036Japan
  
  2,243,240
  
  3,981,326Korea
  
  2,060,488
  
  921,705Kuwait
  
  0
  
  34,252Malaysia
  
  242,603
  
  234,111Netherlands
  
  399,301
  
  136,746Saudi Arabia
  
  110,890
  
  459,780Singapore
  
  263,666
  
  102,874Spain
  
  37,724
  
  0Taiwan
  
  605,379
  
  0United Arab Emirates
  
  100,942
  
  46,265UK
  
  633,446
  
  97,201USA
  
  171,499
  
  247,710Syria
  
  
  
  46,872Yemen
  
  
  
  13,338Total
  $
  38,952,726
  $
  25,242,021


21



---

15.
EARNINGS PER SHARE

Three
  
  Three
  
  Six
  
  SixMonths Ended
  
  Months Ended
  
  Months Ended
  
  Months EndedJune 30, 2008
  
  June 30, 2007
  
  June 30, 2008
  
  June 30, 2007Net Income (A)
  
  2,117,374
  
  (244,510)
  
  3,849,078
  
  1,283,352Basic Weighted Average Shares Outstanding (B)
  
  24,923,178
  
  22,437,703
  
  24,923,178
  
  20,185,241Dilutive Shares:-
Addition to Common Stock from Potential Exercise of Warrants (C)
  
  397,498
  
  817,944
  
  454,925
  
  408,972Diluted Weighted Average Shares Outstanding: (D)
  
  25,320,677
  
  23,255,647
  
  25,378,104
  
  20,594,213Earnings Per Share-
Basic (A)/(B)
  
  0.0850
  
  (0.0087)
  
  0.1544
  
  0.0366-
Diluted (A)/(D)
  
  0.0836
  
  (0.0087)
  
  0.1517
  
  0.0366Weighted Average Shares Outstanding-
Basic
  
  24,923,178
  
  22,437,703
  
  24,923,178
  
  20,185,241-
Diluted
  
  25,320,677
  
  23,255,647
  
  25,378,104
  
  20,594,213




22



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ITEM 2.

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Caution Regarding Forward-Looking Information

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 below entitled "Quantitative and Qualitative Disclosures About Market
Risk" and in the section entitled "Risk Factors" in our Annual Report on Form
10-K for the year ended December 31, 2007.

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 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 quarterly filing. You should read this
quarterly filing and the documents that we reference in this quarterly filing,
or that we filed as exhibits to the quarterly filing of which this quarterly
filing is a part, 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 a Delaware corporation that was incorporated on
February 4, 1986 as Millennium Quest, Inc. and we are headquartered in Shandong
Province, China. From our inception through May 3, 2007, when we completed a
recapitalization with International Lorain Holding, Inc., or Lorain Holding, a
Cayman Islands company, we did not engage in any active business operations
other than search for, and evaluate a potential business opportunity to become
an acquiree of ours through a reverse merger transaction.

As an integrated food manufacturing company, our product mix
varies by season. We develop, manufacture and sell convenience foods; chestnut
products; and frozen, canned and bulk foods, in hundreds of varieties. Food
products are categorized into three types:

- 

convenience
  foods, and

frozen, canned,
  and bulk food.

We operate through our indirect Chinese subsidiaries, Junan
Hongrun, Shandong Lorain, Luotian Lorain, and Beijing Lorain. Our products are
sold in 19 provinces and administrative regions in China and 42 foreign
countries.

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

Lorain Holding was incorporated in the Cayman Islands on
August 4, 2006 and until May 3, 2007, was wholly-owned by Mr. Hisashi Akazawa.
We now own 100% of Lorain Holding, as a result of the May 2007 recapitalization.
Lorain Holding presently has two direct, wholly-owned Chinese operating
subsidiaries: Luotian Lorain and Junan Hongrun; one indirect wholly owned
operating subsidiary, Beijing Lorain; and one majority-owned subsidiary,
Shandong Lorain, which is 80.2% owned by us (with the state-owned Shandong
Economic Development Investment Co. Ltd. owning the remaining 19.8% interest).

23



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Uncertainties that Affect our Financial Condition

The rising level of consumer prices in China may cause a
decrease of our sales and exports which will lower our revenues and profits.

It is expected that the cost of the raw materials we must
purchase to make our finished products may increase in light of a general
increase in prices in China. We expect decreased export sales as we raise our
sale prices to our exports customers to pass along the increased price of raw
materials. We expect the decreased sales may lead to lower revenues than if the
price increase had not occurred and that our profits may suffer as well.

The anticipated appreciation of RMB may harm our financial
condition

Our government has been facing increasing pressure to allow
the RMB to appreciate from the world marketplace recently. In 2007, RMB
appreciated more than 6.14%. Since July of 2005, the RMB has appreciated 10.24%.
The expected appreciation will definitely have a significant impact on our
exports and our financial conditions since exports account for about 50% of our
revenue. Due to the unpredictability of RMB's appreciation, we have planned
efforts to advance our domestic sales and revenues. In 2008, we plan to expend
RMB 20 million (approximately U.S. $3 million) to adjust and expand our sales
and marketing channels. We are also targeting to establish additional 1,000 food
kiosks at different wholesalers and supermarkets and open 100 of our own food
retail stores nationally to increase our domestic sales. Further, we have also
planned to expend RMB 10 million (approximately U.S. $1.5 million) to further
the marketing of our brand and products through different types of media such as
TV commercials, newspaper advertising, internet advertising, and market
campaigns. Whether or not RMB appreciates, the increased domestic spending will
increase our costs and may not lead to any additional revenues. Additionally,
the appreciation of the RMB, if it occurs, could lower our international sales.

24



---



Tight monetary policy implemented by the Chinese government
in 2008 may impede our ability to obtain credit for working capital in a timely
manner.

On December 5, 2007, the central economic work conference
determined that a tight monetary policy will be implemented in 2008 to respond
to inflationary forces and the excessive growth of monetary credits in China. On
December 8, 2007, the People's Bank of China announced it will increase its RMB
deposit reserve rate by one percentage point for financial institutions making
deposits, resulting in a record high interest rate of 14.5%. After that, on
January 16, 2008, March 18, 2008, April 16, 2008 and May 12, 2008 the RMB
deposit reserve rate was increased four times by 0.5% and it reached 16.5% after
May 12, 2008. Due to this new policy, financial institutions have started to
tighten the money supply, reduced credit amounts, delayed loan approvals and
restricted credit requirements. Traditionally, our Company has relied on
short-term credits as a vehicle to purchase raw materials for our production.
This tightened credit policy will impact on our cash management and our
financial condition. We have adopted new policy and informed our customers that
we will shorten our payment period from 55 days to 30 days. We may be unable to
obtain the credit we need to purchase raw materials in the future which may slow
our production and ultimately our revenues.

Results of Operations

Three months Ended June 30, 2008 Compared to Three months
Ended June 30, 2007

The following table summarizes the results of our operations
during the three-month periods ended June 30, 2008 and June 30, 2007,
respectively and provides information regarding the dollar and percentage
increase or (decrease) from the three-month period ended June 30, 2007 to the
three-month period ended June 30, 2008.





25



---



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

|                                    |   | Three months ended June 30, |   | Dollar
  ($)   | Percentage
(%)
|----------------------------------- | - | --------------------------- | - | -------------- | --------------
|                                    |   | 2008                        |   | 2007           |               
|                                    |   | (In Thousands)              |   | (In Thousands) |               
|Net revenues                        | $ | 21,524                      | $ | 13,343         | $             
|Cost of revenues                    |   | (16,338)                    |   | (10,389)       |               
|Gross profit                        |   | 5,186                       |   | 2,955          |               
|Operating expenses                  |   |                             |   |                |               
|Selling and marketing expenses      |   | (616)                       |   | (297)          |               
|General and administrative expenses |   | (1,088)                     |   | (460)          |               
|Operating Income                    |   | 3,482                       |   | 2,197          |               
|Investment income                   |   | (3)                         |   | 0              |               
|Government subsidy income           |   | 4                           |   | (8)            |               
|Interest and other income           |   | 72                          |   | 7              |               
|Other expenses                      |   | (95)                        |   | (1,329)        |               
|Interest expense                    |   | (683)                       |   | (738)          |               
|Earnings before tax                 |   | 2,777                       |   | 130            |               
|Income tax                          |   | (493)                       |   | (286)          |               
|Income before minority interests    |   | 2,284                       |   | (155)          |               
|Minority interests                  |   | (167)                       |   | (54)           |               
|Net income                          | $ | 2,117                       | $ | (210)          | $             

Revenue

Net Revenues. Our net revenue for the three months ended
June 30, 2008 amounted to $21.52 million, which is approximately $8.18 million
or 61% more than that of the same period ended on June 30, 2007, where we had
revenue of $13.34 million. This increase was attributable to an increase of 78%
in domestic sales as compared to the same period ended June 30, 2007, as a
result of strong domestic chestnut sales combined with more efficient
distribution channels. During the quarter, we started transferring domestic
sales to agents rather than selling through wholesalers or directly to
retailers. In addition, we increased the number of branded counters in
supermarkets and showcase stores to a total of approximately 500 retail outlets
as of June 30, 2008.

Cost of Revenues. Our cost of goods sold, which consists
of raw materials, direct labor and manufacturing overhead expenses, was $16.34
million for the three month period ended June 30, 2008, a increase of $5.95
million or 57%, as compared to $10.39 million for the three month period ended
June 30, 2007. This increase was mainly attributable to the increased sales of
chestnuts products as a percentage of total sales, since chestnuts have higher
gross profit margin.

26



---



Gross Profit. Our gross profit increased $2.24 million,
or 76% to $5.19 million for the three months ended June 30, 2008 from $2.95
million for the same period in 2007. This increase was mainly attributable to
the fact that we were able to fully transfer rising raw material prices to
consumers.

Operating Expenses

Selling and Marketing Expenses. Selling and marketing
expenses increased $0.32 million, or 107% to $0.62 million for the three months
ended June 30, 2008 from $0.30 million for the same period in 2007. This
increase mainly resulted from increased efforts to market our products in our
domestic market.

General and Administrative Expenses. General and
administrative expenses increased $0.63 million, or 136% to $1.09 million for
the three months ended June 30, 2008 from $0.46 million for the same period of
2007.The increase of general and administrative expenses was primarily
attributable to expansion of our distribution channels.

Income Before Taxation and Minority Interest

Income before taxation and minority interest increased $2.65
million or 2,034% to $2.78 million for the three months ended June 30, 2008from
$0.13 million for the same period of 2007. The increase was primarily attributed
to the substantial loss incurred by Beijing Lorain due to the fire in the May of
2007 and increased sales in the second quarter of 2008.

Income Taxes

Income taxes increased $0.20 million or 73% to $0.49 million
for the three months ended June 30, 2008 from $0.29 million for the same period
of 2007. The increase of tax paid was primarily a result of higher income
achieved by all the subsidiaries of American Lorain.

We operate through our three directly or indirectly
wholly-owned subsidiaries Junan Hongrun, Luotian Lorain, and Beijing Lorain and
one majority-owned subsidiary, Shandong Lorain, in which we own 80.2% of the
equity (directly and indirectly). As approved by local tax authorities in the
PRC, all four companies were granted a "tax holiday" that allows them to be
exempt from both the national and local income taxes for the first two
profitable years followed by a 50% tax exemption in the next three years. The
four companies started to enjoy the preferential tax policy from 2001, 2004,
2006 and 2007 respectively. The table below shows the detailed income tax rate
for the four companies. On March 16, 2007, the National People's Congress of the PRC determined to adopt a new corporate income tax law in its fifth plenary
session and the new corporate income tax law effected on January 1, 2008.
According to the new corporate income tax law, the applicable income tax rates
for our operating subsidiaries are as following:

Income Tax Rate
  2007
  2008
  2009Junan Hongrun
  15%
  15%
  25%Luotian Lorain
  0%
  15%
  15%Beijing Lorain
  0%(1)
  0%(1)
  15%(1)Shandong Lorain
  30%
  25%
  25%


(1)

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

Net Income.

Net income increased $2.33 million, or 1,109% to $2.12
million for the three months ended June 30, 2008 from ($0.21) million for the
same period of 2007. Net loss for the year ago period includes the impact of
$1.3 million in non-operational expenses due to a fire at the Company's Beijing
Lorain facility.

27



---



Six months Ended June 30, 2008 Compared to Six months Ended
June 30, 2007

The following table summarizes the
results of our operations during the six-month periods ended June 30, 2008 and
June 30, 2007, and provides information regarding the dollar and percentage
increase or (decrease) from the six-month period ended June 30, 2007 to the
six-month period ended June 30, 2008.

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

|                                    |   | Six months ended June 30, |   | Dollar
  ($)   | Percentage
(%)
|----------------------------------- | - | ------------------------- | - | -------------- | --------------
|                                    |   |                           |   |                |               
|                                    |   | 2008                      |   | 2007           |               
|                                    |   | (In Thousands)            |   | (In Thousands) |               
|Net revenues                        | $ | 38,953                    | $ | 25,242         | $             
|Cost of revenues                    |   | (29,819)                  |   | (19,341)       |               
|Gross profit                        |   | 9,134                     |   | 5,901          |               
|Operating expenses                  |   |                           |   |                |               
|Selling and marketing expenses      |   | (1,235)                   |   | (423)          |               
|General and administrative expenses |   | (1,632)                   |   | (820)          |               
|                                    |   |                           |   |                |               
|Operating Income                    |   | 6,267                     |   | 4,658          |               
|                                    |   |                           |   |                |               
|Investment income                   |   | (3)                       |   | 0              |               
|Government subsidy income           |   | 37                        |   | 0              |               
|Interest and other income           |   | 111                       |   | 34             |               
|Other expenses                      |   | (105)                     |   | (1,333)        |               
|Interest expense                    |   | (1,274)                   |   | (1,303)        |               
|                                    |   |                           |   |                |               
|Earnings before tax                 |   | 5,033                     |   | 2,055          |               
|                                    |   |                           |   |                |               
|Income tax                          |   | (884)                     |   | (616)          |               
|                                    |   |                           |   |                |               
|Income before minority interests    |   | 4,150                     |   | 1,439          |               
|                                    |   |                           |   |                |               
|Minority interests                  |   | (300)                     |   | (156)          |               
|                                    |   |                           |   |                |               
|Net income                          | $ | 3,849                     | $ | 1,283          | $             



28



---



Revenue

Net Revenues. Our net revenue for the six months ended
June 30, 2008 amounted to $38.95 million, which is approximately $13.71 million
or 54% more than that of the same period ended on June 30, 2007 where we had
revenue of $25.24 million. The increased revenues were attributable to the
success of the Company's marketing strategies, operational enhancements and
expansion of sales markets, both domestically and internationally. During the
first quarter of 2008, sales to France, Belgium, Korea, Taiwan and the UK in the
aggregate increased approximately 175% compared with the same period last year.
During the second quarter of 2008, we started transferring domestic sales to
agents rather than selling through wholesalers or directly to retailers. In
addition, we increased the number of branded counters in supermarkets and
showcase stores to a total of approximately 500 retail outlets as of June 30,
2008.

Cost of Revenues. Our cost of goods sold, which consists
of raw materials, direct labor and manufacturing overhead expenses, was $29.82
million for the six month period ended June 30, 2008, an increase of $10.48
million or 54%, as compared to $19.34 million for the six month period ended
June 30, 2007. The cost of goods sold increased because the sales in the first
six months of 2008 increased as compared to the same period ended June 30, 2007.

Gross Profit. Our gross profit increased $3.23 million,
or 55% to $9.13 million for the six months ended June 30, 2008 from $5.90
million for the same period in 2007. This increase was attributable to increased
sales and to our ability to fully transfer rising raw material prices to
consumers in the second quarter of 2008.

Operating Expenses

Selling and Marketing Expenses. Selling and marketing
expenses increased $0.81 million, or 192% to $1.24 million for the six months
ended June 30, 2008 from $0.42 million for the same period in 2007. This
increase mainly resulted from increased efforts to market our products in our
domestic market.

General and Administrative Expenses. General and
administrative expenses increased $0.81 million, or 99% to $1.63 million for the
six months ended June 30, 2008 from $0.82 million for the same period of 2007.
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.

Income Before Taxation and Minority Interest

Income before taxation and minority interest increased $2.98
million or 145% to $5.03 million for the six months ended June 30, 2008 from
$2.06 million for the same period of 2007.The increase was primarily a
result of the higher revenue during the six month period ended on June 30, 2008
as compared to 2007.

Income Taxes

Income taxes increased $0.27 million or 44% to $0.88 million
for the six months ended June 30, 2008 from $0.62 million for the same period of
2007. The increase of tax paid was primarily a result of the increase of income
in the first six months ended June 30, 2008, as compared to the same period in
2007.

Net Income

Net income increased $2.57million, or 200% to $3.85 million
for the six months ended June 30, 2008 from $1.28 million for the same period of
2007. Net loss for the year ago period includes the impact of $1.3 million in
nonoperational expenses due to a fire at the Company's Beijing Lorain facility.

Liquidity and Capital Resources

As of June 30, 2008, we had cash and cash equivalents
(including restricted cash) of $12.75 million. The following table provides
detailed information about our net cash flow for all financial statements
periods presented in this report.

29



---



|                                                    |                          
|--------------------------------------------------- | -------------------------
|                                                    | Cash Flow (in thousands) 
|                                                    | Six Months Ended June 30,
|                                                    | 2008                     
|Net cash provided by (used in) operating activities | $                        
|Net cash provided by (used in) investing activities | $                        
|Net cash provided by (used in) financing activities | $                        
|Net cash flow (outflow)                             | $                        

Operating Activities

Net cash provided by operating activities was $3.28 million
for the six months period ended June 30, 2008, which is an increase of $12.28
million from ($8.99) million for the same period of 2007. The increase of net
cash provided by operating activities was primarily a result of the decrease in
accounts and other receivables in the first half of fiscal 2008 of approximately
$15.6 million as compared to the same period in 2007. This increase was
partially offset by the decrease in accounts and other payables in the first
half of fiscal 2008 of approximately $7.6 million as compared to the same period
in 2007.

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, 2008 was ($9.13) million, which is an increase of $3.35
million from net cash used in investing activities of ($5.78) million for the
same period of 2007. The increase was primarily due to the construction, in the
amount of approximately $5.7 million, of vegetable tents and of comprehensive
workshops for the processing of chestnut and other food products in the first
six months of 2008, as compared to the same period of 2007.

Financing Activities

Net cash used in financing activities for the six months
period ended June 30, 2008 was ($0.70) million, which is an increase of $0.52
million from ($0.18) million net cash used in financing activities during the
same period in 2007. The increase of the net cash used in financing activities
was primarily a result of the fact that in 2007 we had additional paid-in
capital of approximately $20.26 million in connection with a May 2007 private
placement. This increase was partially offset by increased bank borrowings of
approximately $1.3 million and notes payable of approximately $3.8 million
during the six months ended June 30, 2008 and by approximately $5.8 million of
bank repayments during the six months ended June 30, 2007.

Loan Facilities

As of June 30, 2008, the amounts and maturity dates for our
bank loans were as follows:

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

|Banks                                       | Amounts  | Beginning | Ending    | Interest Rate | Duration 
|------------------------------------------- | -------- | --------- | --------- | ------------- | ---------
|Beijing rural credit union                  | 2,764.92 | 9/29/2007 | 9/29/2008 | 10.94%        | 12 months
|Bank of Beijing Co., Ltd.                   | 291.05   | 7/18/2007 | 7/18/2008 | 7.88%         | 12 months
|International Trust & Investment Co., Ltd.  | 1,455.22 | 6/13/2005 | 6/13/2008 | 7.84%         | 36 months
|Junan County Industrial and Commercial Bank | 85.75    | 12/6/2007 | 6/30/2008 | 6.12%         | 7months  
|Junan County Industrial and Commercial Bank | 94.59    | 1/30/2008 | 7/10/2008 | 9.71%         | 5 months 
|Junan County Industrial and Commercial Bank | 49.48    | 1/30/2008 | 8/08/2008 | 9.71%         | 6months  



30



---



|Banks | Amounts | Beginning | Ending | Interest Rate | Duration
|----- | ------- | --------- | ------ | ------------- | --------

|Junan County Industrial and Commercial Bank | 203.73   | 1/23/2008  | 12/22/2008 | 9.71%  | 11 months
|------------------------------------------- | -------- | ---------- | ---------- | ------ | ---------
|Junan County Industrial and Commercial Bank | 407.46   | 2/03/2008  | 11/01/2008 | 7.47%  | 9 months 
|Junan County Industrial and Commercial Bank | 582.09   | 2/03/2008  | 12/01/2008 | 7.47%  | 10 months
|Junan County Industrial and Commercial Bank | 392.91   | 5/15/2008  | 10/12/2008 | 8.54%  | 5 months 
|Junan County Industrial and Commercial Bank | 72.76    | 5/08/2008  | 7/29/2008  | 8.54%  | 3 months 
|Junan County Construction Bank              | 436.57   | 8/31/2007  | 8/31/2008  | 6.26%  | 12 months
|Junan County Construction Bank              | 365.26   | 9/08/2007  | 9/07/2008  | 6.26%  | 12months 
|Junan County Construction Bank              | 349.25   | 7/24/2007  | 7/23/2008  | 8.89%  | 12 months
|Junan County Construction Bank              | 273.22   | 9/18/2007  | 9/17/2008  | 6.31%  | 12 months
|Junan County Construction Bank              | 261.94   | 4/30/2008  | 7/29/2008  | 7.88%  | 3 months 
|Junan County Construction Bank              | 771.27   | 4/30/2008  | 7/29/2008  | 7.88%  | 3 months 
|Junan County Construction Bank              | 582.09   | 5/12/2008  | 8/8/2008   | 7.88%  | 3 months 
|Junan County Construction Bank              | 87.14    | 4/22/2008  | 6/11/2008  | 7.88%  | 2 months 
|Junan County Construction Bank              | 334.7    | 5/12/2008  | 8/8/2008   | 7.88%  | 3 months 
|Junan County Construction Bank              | 669.4    | 6/5/2008   | 8/28/2008  | 7.88%  | 3 months 
|Junan County Construction Bank              | 844.03   | 6/5/2008   | 8/27/2008  | 7.88%  | 3 months 
|Junan County Construction Bank              | 451.12   | 6/19/2008  | 9/18/2008  | 7.88%  | 3 months 
|Junan County Agriculture Bank               | 58.21    | 1/05/2008  | 1/04/2009  | 12.70% | 12 months
|Junan County Agriculture Bank               | 1018.66  | 5/14/2008  | 8/13/2008  | 11.17% | 3 months 
|Junan County Agriculture Bank               | 87.31    | 1/05/2008  | 1/04/2009  | 12.70% | 12 months
|Junan County Agriculture Bank               | 58.21    | 1/05/2008  | 1/04/2009  | 12.70% | 12 months
|Junan County Agriculture Bank               | 945.9    | 6/25/2008  | 9/24/2008  | 11.17% | 3 months 
|Junan County Agriculture Bank               | 334.7    | 1/28/2008  | 7/18/2008  | 11.17% | 6 months 
|Junan County Agriculture Bank               | 116.42   | 2/02/2008  | 1/01/2009  | 11.17% | 11 months
|Junan County Agriculture Bank               | 436.57   | 10/31/2007 | 10/30/2008 | 12.39% | 12 months
|Junan County Agriculture Bank               | 254.66   | 11/12/2007 | 11/11/2008 | 12.39% | 12 months
|Junan County Agriculture Bank               | 218.28   | 11/15/2007 | 11/14/2008 | 12.39% | 12 months
|Junan County Agriculture Bank               | 436.57   | 11/23/2007 | 11/22/2008 | 12.39% | 12 months
|Junan County Agriculture Bank               | 305.6    | 11/30/2007 | 11/29/2008 | 12.39% | 12 months
|Junan County Agriculture Bank               | 436.57   | 12/05/2007 | 12/04/2008 | 12.39% | 12 months
|Junan County Agriculture Bank               | 436.57   | 12/14/2007 | 12/13/2008 | 12.39% | 12 months
|Junan County Agriculture Bank               | 87.31    | 8/02/2007  | 8/01/2008  | 11.63% | 12 months
|Junan County Agriculture Bank               | 58.21    | 3/21/2008  | 3/20/2009  | 12.70% | 12 months
|Union Bank (China) Co., Ltd.                | 1,044.85 | 1/28/2008  | 1/14/2009  | 5.49%  | 12 months
|Linyi Commercial Bank                       | 145.52   | 12/25/2007 | 12/25/2008 | 13.07% | 12 months
|Linyi Commercial Bank                       | 683.96   | 2/01/2008  | 1/05/2009  | 13.07% | 11 months
|Linyi Commercial Bank                       | 654.85   | 2/02/2008  | 1/12/2009  | 13.07% | 11 months



31



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|Banks | Amounts | Beginning | Ending | Interest Rate | Duration
|----- | ------- | --------- | ------ | ------------- | --------

|China Agricultural Bank, Luotian Square Branch | 742.16    | 8/30/2007  | 8/28/2008  | 7.72%  | 12 months
|---------------------------------------------- | --------- | ---------- | ---------- | ------ | ---------
|Junan Agricultural Development Bank            | 1,455.22  | 9/28/2007  | 9/26/2008  | 7.29%  | 12 months
|Junan Agricultural Development Bank            | 87.31     | 6/4/2008   | 9/3/2008   | 6.57%  | 3 months 
|Junan Agricultural Development Bank            | 97.50     | 6/13/2008  | 9/12/2008  | 6.57%  | 3 months 
|Bank of China, Junan Branch                    | 7.29      | 9/19/2006  | 5/19/2009  | 7.50%  | 36 months
|Shenzhen Development Bank                      | 1455.22   | 5/15/2008  | 11/15/2008 | 7.47%  | 6 months 
|Jinan Merchants Bank                           | 1455.22   | 4/3/2008   | 10/3/2008  | 15.00% | 6 months 
|Agricultural Development Lutian Government     | 109.14    | 12/11/2006 | 12/11/2010 | 0.67%  | 4 years  
|Agricultural Development Lutian Government     | 25.47     | 1/11/2008  | 12/11/2011 | 2.10%  | 4 years  
|Union Commercial Bank (China)                  | 433.61    | 1/29/2008  | 1/14/2011  | 5.49%  | 3 years  
|Total                                          | 25,513.02 |            |            |        |          

As shown in the above table, we have $1.63 million in loans
maturing on or before the end of June 30, 2008. Loans listed in the table above
whose maturity dates are prior to June 30, 2008 have either been repaid or have
been extended by the lending banks for either 6 months or 1 year.

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.

Obligations under Material Contracts

We do not have any material contractual obligations as of
June 30, 2008.

Critical Accounting Policies

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

- 





32

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As of June 30, 2008, the particulars of the commonly
controlled entities are as follows:

|Name of company                    |  | Place of
incorporation |  | Attributable
equity
interest % |  | Registered 
capital |  |                 
|---------------------------------- |  | ---------------------- |  | ------------------------------ |  | ------------------- |  | ----------------
|Shandong Green Foodstuff Co., Ltd. |  | PRC                    |  | 80.2%                          |  | $12,901,823         |  | RMB 1008,860,000
|Luotian Green Foodstuff Co., Ltd.  |  | PRC                    |  | 100%                           |  | 1,279,181           |  | RMB 10,000,000  
|Junan Hongrun Foodstuff Co., Ltd.  |  | PRC                    |  | 100%                           |  | 2,430,445           |  | RMB 19,000,000  
|Beijing Green Foodstuff Co., Ltd.  |  | PRC                    |  | 1005                           |  | 1,279,181           |  | RMB 10,000,000  

- 

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.

- 

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

Recent accounting pronouncements

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

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

33



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

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

Seasonality

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

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

ITEM 3.

QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk primarily with respect
to our short-term bank loans. Although the interest rates are fixed for the
terms of the loans, the terms are typically 12 months and interest rates are
subject to change upon renewal. Since December 2007, China People's Bank has
increased the interest rate of RMB bank loans with a term of 1 year by 0.18%.
The new interest rates are 7.47% for RMB bank loans with a term of 1 year. The
change in interest rates impacts our bank loans. A hypothetical 1.0% increase in
the annual interest rates for all of our credit facilities at December 31, 2007
would decrease net income before provision for income taxes by approximately
$125,000 for the six months ended June 30, 2008. Management monitors the banks'
interest rates in conjunction with our cash requirements to determine the
appropriate level of debt balances relative to other sources of funds. We have
not entered into any hedging transactions in an effort to reduce our exposure to
interest rate risk.

Foreign Exchange Risk

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

Inflation

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

34



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ITEM 4.

CONTROLS AND
PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As required by Rule 13a-15 and Rule 15d-15 promulgated under
the Exchange Act, our management, including our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of June 30, 2008. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that as of June 30, 2008, our disclosure controls and procedures were effective
to satisfy the objectives for which they are intended.

Changes in Internal Control Over Financial Reporting.

No change occurred in our internal control over financial
reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the
Exchange Act) during the fiscal quarter ended June 30, 2008 that has materially
affected or is reasonably likely to materially affect our internal control over
financial reporting.

PART IIOTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

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

ITEM 1A.      RISK FACTORS

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

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

There were no unregistered sales of equity securities during
the quarter ended June 30, 2008.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities in the quarter
ended June 30, 2008.

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

No matters were submitted to a vote of our security holders
during the quarter ended June 30, 2008.

ITEM 5.OTHER INFORMATION

None.

35



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ITEM 6.EXHIBITS

EXHIBITS.

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



36



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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 hereunto duly authorized.

AMERICAN LORAIN CORPORATIONDate:  August 14, 2008By:/s/ Si ChenSi Chen
Chief Executive Officer




37



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EXHIBIT INDEX

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





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