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

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, 2010

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

Commission File No. 001-34449

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

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

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

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

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

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

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

Large accelerated filer [  ]

Accelerated filer [  ]

Non-accelerated filer [  ]

Smaller reporting company [X]

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

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

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Table of Contents

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

 

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND ACCOUNTANT’S REPORT

AMERICAN LORAIN CORPORATION

 

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

 

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REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM

 

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

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

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

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

 

 

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

1

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AMERICAN LORAIN CORPORATION
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 2010 AND DECEMBER 31, 2009
(Stated in US Dollars)

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

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

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AMERICAN LORAIN CORPORATION
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 2010 AND DECEMBER 31, 2009
(Stated in US Dollars)

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

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

3

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AMERICAN LORAIN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)

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

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AMERICAN LORAIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Stated in US Dollars)

		Three months ended June 30,						Six months ended June 30,
		2010			2009			2010			2009
Cash flows from operating activities
Net income	$	2,871,509		$	1,963,673		$	4,890,358		$	3,861,898
Stock and share based compensation		205,943			-			454,949			-
Depreciation		322,416			331,026			687,985			665,480
Amortization		33,341			91,615			69,061			135,992
(Increase)/decrease in accounts & other receivables		4,205,909			(6,927,729	)		8,294,930			(5,234,644	)
(Increase)/decrease in inventories		1,798,055			832,815			(7,675,643	)		(2,027,754	)
Decrease/(increase) in prepayment		972,209			1,002,431			734,094			908,005
Increase/(decrease) in accounts and other payables		(1,648,161	)		(7,086,166	)		(1,950,117	)		(8,571,918	)
Net cash (used in)/provided by operating activities		8,761,221			(9,792,335	)		5,505,617			(10,262,941	)
Cash flows from investing activities
Sales (investment) in short term investment fund		-			(13	)		22,227			2,767
(Increase)/decrease in restricted cash		376,613			-			558,448			-
Payment of land use rights		(18,318	)		(98,320	)		(33,205	)		(121,009	)
Payments for purchase of equipment & plant		(9,618,218	)		(383,364	)		(10,045,753	)		(526,530	)
Decrease (increase) in deposit		-			213,860			-			(2,045	)
Net cash used in investing activities		(9,259,923	)		(267,837	)		(9,498,283	)		(646,817	)
Cash flows from financing activities
Bank borrowings		5,297,856			2,886,255			23,151,602			17,535,302
Repayment of bank loans		(2,900,729	)		-			(20,861,829	)		-
Notes payable		-			1,614,365			-			(3,594,121	)
Issue of common stock		-			6,147			-			6,152
Net cash provided by/(used in) financing activities	$	2,397,127		$	4,506,767		$	2,289,773		$	13,947,333
Net Increase/(decrease) of Cash and Cash Equivalents		1,898,425			(5,553,405	)		(1,702,893	)		3,037,575
Effect of foreign currency translation on cash and cash equivalents		(89,298	)		141,404			(69,848	)		952,807
Cash and cash equivalents–beginning of year		8,529,664			12,243,722			12,111,532			2,841,339
Cash and cash equivalents–end of year	$	10,338,791		$	6,831,721		$	10,338,791		$	6,831,721

		Three months ended June 30,						Six months ended June 30,
		2010			2009			2010			2009
Supplementary cash flow information:
Interest received	$	3,998		$	1,620		$	6,802		$	66,610
Interest paid	$	1,018,530		$	744,825		$	1,938,954		$	1,348,651
Income taxes paid	$	649,208		$	602,706		$	2,489,131		$	1,183,478

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

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AMERICAN LORAIN CORPORATION
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2010 AND DECEMBER 31, 2009
(STATED IN US DOLLARS)

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

See Accompanying Notes to the Financial Statements and Accountant’s Report
6

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AMERICAN LORAIN CORPORATION
NOTES TO FINANCIAL STATEMENTS – JUNE 30, 2010 AND 2009
(Stated in US Dollars)

1.	ORGANIZATION, BASIS OF PRESENTATION, AND PRINCIPAL ACTIVITIES

	(a)	Organization history of American Lorain Corporation (formerly known as Millennium Quest, Inc.)
		American Lorain Corporation (the “Company” or “ALC”) is a Delaware corporation incorporated on February 4, 1986. From inception through May 3, 2007, the Company did not engage in any active business operations other than in search and evaluation of potential business opportunities to become an acquiree (for accounting purposes) in a reverse-merger transaction.
	(b)	Organization History of International Lorain Holding Inc. and its subsidiaries
		International Lorain Holding Inc. (“ILH”) is a Cayman Islands company incorporated on August 4, 2006 and was until May 3, 2007 wholly-owned by Mr. Hisashi Akazawa. Through restructuring and acquisition in 2006, the Company presently has two direct wholly-owned subsidiaries, Junan Hongrun and Luotian Lorain, and one indirectly wholly-owned subsidiary through Junan Hongrun, which is Beijing Lorain.
		In addition, the Company directly and indirectly has 80.2% ownership of Shandong Lorain. The rest of the 19.8%, which is owned by the State under the name of Shandong Economic Development Investment Co. Ltd., is not included as a part of the Group.
		On April 9, 2009, the Company, through its Junan Hongrun subsidiary, invested cash to establish Dongguan Lorain. Dongguan Lorain is indirectly 100% beneficially owned by the Company.
	(c)	Reverse-Merger
		On May 3, 2007, the Company entered into a share exchange agreement with ILH whereby the Company consummated its acquisition of ILH by issuance of 697,663 Series B voting convertible preferred shares to the shareholders of ILH in exchange of 5,099,503 ILH shares. Concurrently on May 3, 2007, the Company also entered into a securities purchase agreement with certain investors and Mr. Hisashi Akazawa and Mr. Si Chen (each a “beneficial owner”) whereby the Company issued 319,913 common shares (after effecting a reverse- split of its shares at the rate of 32.84 post-split shares for 10,508,643 pre-split shares) to its shareholders as consideration of the Company’s reverse-merger with Lorain.
		The share exchange transaction is referred to hereafter as the “reverse-merger transaction.” The share exchange transaction has been accounted for as a recapitalization of ALC where the Company (the legal acquirer) is considered the accounting acquiree and ILH (the acquiree) is considered the accounting acquirer. As a result of this transaction, the Company is deemed to be a continuation of the business of ILH.
		Accordingly, the accompanying consolidated financial statements are those of the accounting acquirer, ILH. The historical stockholders’ equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the share exchange transaction occurred as of the beginning of the first period presented. See also Note 15 Capitalization.
	(d)	Business Activities
		The Company develops, manufactures, and sells convenience foods (includes ready-to-cook (or RTC) foods; ready-to-eat (or RTE) foods and meals ready-to-eat (or MRE); chestnut products; and frozen foods, in hundreds of varieties. The Company operates through indirect Chinese subsidiaries. The products are sold in 26 provinces and administrative regions in China and 42 foreign countries. Food products are categorized into three types: (1) chestnut products, (2) convenience food, and (3) frozen food.

7

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

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

	(c)	Use of estimates
		The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates
	(d)	Economic and political risks
		The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
		The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in

8

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

		governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
	(e)	Lease prepayments
		Lease prepayments represent the cost of land use rights in the PRC. Land use rights are carried at cost and amortized on a straight-line basis over the period of rights of 50 years.
	(f)	Property, plant and equipment
		Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

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

9

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

		A decline in the market value of any available-for-sale security below cost that is deemed to be other-than- temporary results in a reduction in carrying amount to fair value. The impairment is charged as an expense to the statement of income and comprehensive income and a new cost basis for the security is established. To determine whether impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end, and forecasted performance of the investee.
		Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective-interest method. Dividend and interest income are recognized when earned.
	(j)	Inventories
		Inventories consisting of finished goods and raw materials are stated at the lower of cost or market value. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of overhead.
	(k)	Trade receivables
		Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.
	(l)	Customer deposits
		Customer deposits were received from customers in connection with orders of products to be delivered in future periods.
	(m)	Cash and cash equivalents
		The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
	(n)	Advertising
		All advertising costs are expensed as incurred.
	(o)	Shipping and handling
		All shipping and handling are expensed as incurred.
	(p)	Research and development
		All research and development costs are expensed as incurred.
	(q)	Retirement benefits
		Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the consolidated statement of income as incurred.
	(r)	Income taxes
		The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial

10

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

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

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

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

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

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

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

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

11

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

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

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

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

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

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under

12

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

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

13

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

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

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

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

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

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

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

14

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

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

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

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

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

Construction in progress is mainly comprised of capital expenditures for construction of the Company’s new corporate campus, including offices, factories, and staff dormitories. Capital commitments for the construction are immaterial for the two years above.

Landscaping, plants, and trees are the Chestnut subsidiary’s investment in the development of agricultural operations, which have not been the significant source of the raw materials needed for the Company’s operations to date.

15

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

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

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

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

16

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

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

17

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

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

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

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

18

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

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

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

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

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

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

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

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

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

19

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

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

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

20

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

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

Per Share Effect of Tax Exemption

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

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

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

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

21

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

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

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

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

22

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

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

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

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

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

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

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

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

23

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

Caution Regarding Forward-Looking Statements

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

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

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

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

Overview

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

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

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

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

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

Production Factors that Affect our Financial and Operational Condition

Our business depends on obtaining a reliable supply of various agricultural products, including chestnuts, vegetables, fruits, red meat, fish, eggs, rice, flour and packaging products. During the first two quarters of 2010, the cost of our raw materials increased from $32.4 million to $38.0 million, as compared to the first two quarters of 2009, for an increase of approximately 17.3% . During the second quarter of 2010, the cost of our raw materials increased from $17.9 million to $20.8 million, as compared to the second quarter of 2009, for an increase of approximately 16.2% . We may have to increase the number of our suppliers of raw materials and expand our own agricultural operations in the future to meet growing production demands. Despite our efforts to control our supply of raw materials and maintain good relationships with our suppliers, we could lose one or more of our suppliers at any time. The loss of several suppliers may be difficult to replace and could increase our reliance on higher cost or lower quality suppliers, which could negatively affect our profitability. In addition, if we have to increase the number of our suppliers of raw materials in the future to meet growing production demands, we may not be able to locate new suppliers who could provide us with sufficient materials to meet our needs. Any interruptions to, or decline in, the amount or quality of our raw materials supply could materially disrupt our production and adversely affect our business and financial condition and financial prospects.

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

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

Seasonality

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

Uncertainties that Affect our Financial Condition

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

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

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

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

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

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

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

Results of Operations

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

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

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

	Three months ended
	June 30,		Dollar($)	Percentage (%)
	2010	2009	Increase	Increase
	(In US Dollar)	(In US Dollar)	(Decrease)	(Decrease)
Net revenues	29,218,314	23,965,924	5,252,390	21.9%
Cost of revenues	(22,499,645)	(18,675,167)	(3,824,478)	20.5%
Gross profit	6,718,669	5,290,757	1,427,912	27.0%
Operating expenses
Selling and marketing expenses	(1,194,996)	(1,220,317)	25,321	-2.1%
General and administrative expenses	(932,210)	(914,892)	(17,318)	1.9%
Operating Income	4,591,463	3,155,548	1,435,915	45.5%
Government subsidy income	196,003	97,663	98,340	100.7%
Interest and other income	9,490	127,279	(117,789)	-92.5%
Other expenses	(44,714)	(69,286)	24,572	-35.5%
Interest expense	(1,023,129)	(744,825)	(278,304)	37.4%
Earnings before tax	3,729,113	2,566,379	1,162,734	45.3%
Income tax	(857,604)	(602,706)	(254,898)	42.3%
Income before minority interests	2,871,509	1,963,673	907,836	46.2%
Minority interests	(191,896)	(108,046)	(83,850)	77.6%
Net income	2,679,613	1,855,627	823,986	44.4%

Revenue

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

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

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

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

Operating Expenses

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

 

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

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

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

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

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

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

Income Before Taxation and Minority Interest

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

Income Taxes

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

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

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

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

Net Income

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

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

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

		Six months ended
		June 30,						Dollar($)			Percentage (% )
		2010			2009			Increase			Increase
		(In US Dollar)			(In US Dollar)			(Decrease)			(Decrease)
Net revenues		53,778,530			45,166,461			8,612,069			19.1%
Cost of revenues		(41,335,771	)		(34,713,370	)		(6,622,401	)		19.1%
Gross profit		12,442,759			10,453,091			1,989,668			19.0%
Operating expenses
Selling and marketing expenses		(2,567,348	)		(2,391,164	)		(176,184	)		7.4%
General and administrative expenses		(1,948,662	)		(1,891,197	)		(57,465	)		3.0%
Operating Income		7,926,749			6,170,730			1,756,019			28.5%
Government subsidy income		377,424			196,252			181,172			92.3%
Interest and other income		131,571			208,648			(77,077	)		-36.9%
Other expenses		(72,237	)		(181,603	)		109,366			-60.2%
Interest expense		(1,943,553	)		(1,348,651	)		(594,902	)		44.1%
Earnings before tax		6,419,954			5,045,376			1,374,578			27.2%
Income tax		(1,529,596	)		(1,183,478	)		(346,118	)		29.2%
Income before minority interests		4,890,358			3,861,898			1,028,460			26.6%
Minority interests		(350,214	)		(250,194	)		(100,020	)		40.0%
Net income		4,540,144			3,611,704			928,440			25.7%

Revenue

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

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

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

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

Operating Expenses

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

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

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

Income Before Taxation and Minority Interest

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

Income Taxes

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

Net Income

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

Liquidity and Capital Resources

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

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		Six Months Ended
		June 30,
		2010			2009
Net cash provided by (used in) operating activities		5,506			(10,263	)
Net cash provided by (used in) investing activities		(9,498)			(647	)
Net cash provided by (used in) financing activities		2,290			13,947
Net cash flow (outflow)		(1,703)			3,308

Operating Activities

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

Investing Activities

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

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

Financing Activities

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

Loan Facilities

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

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

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

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

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

Obligations under Material Contracts

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

Critical Accounting Policies

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

Method of Accounting -- We maintain our general ledger and journals with the accrual method accounting for financial reporting purposes. Accounting policies adopted by us conform to generally accepted accounting principles in the United States and have been consistently applied in the presentation of our financial statements, which are compiled on the accrual basis of accounting.

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

Principles of consolidation -- Our consolidated financial statements, which include information about our company and our subsidiaries, are compiled in accordance with generally accepted accounting principles in the United States. All significant inter-company accounts and transactions have been eliminated. Our consolidated financial statements include 100% of assets, liabilities, and net income or loss of our wholly-owned subsidiaries. Ownership interests of minority investors are recorded as minority interests.

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

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

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

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the reporting period, there was no impairment loss.

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

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

Recent Accounting Pronouncements

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

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

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

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

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

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

Changes in Internal Controls over Financial Reporting.

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

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Not applicable.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. REMOVED AND RESERVED

Not applicable

ITEM 5. OTHER INFORMATION

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

ITEM 6. EXHIBITS

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

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SIGNATURES

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

Date: August 10, 2010

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

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