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

FORM 10-K/A
Amendment No. 1

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

For the fiscal year ended: December 31, 2007

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

For the transition period from __________ to ____________

Commission File Number: 000-50883

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

Delaware	87-0430320
(State or other jurisdiction of incorporation or organization)	(I.R.S.  Employer Identification Number)
Beihuan Zhong Road Junan County Shandong, People’s Republic of China, 276600
(Address of principal executive office and zip code)
(86) 539-7318818
(Registrant’s telephone number, including area code) MILLENNIUM QUEST, INC. 4089 Mount Olympus Way, Salt Lake City, Utah 84124
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value 0.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

Yes £            No Q

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 

Yes £            No Q

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 Q            No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

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

Large accelerated filer  £

Accelerated filer £

Non-accelerated filer £

Smaller reporting company Q

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

Yes £            No Q

The number of shares and aggregate market value of common stock held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was 7,427, 109 and $144,828, 626, respectively.

There were 24,923,185 shares of common stock outstanding as of April 14, 2008.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

 

2

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EXPLANATORY NOTE

American Lorain Corporation (the "Company") is filing this Amendment No. 1 to Form 10-K (the "Amendment") to amend its annual report for fiscal year ended December 31, 2007 (the "Original Filing") to, among other things, correct certain amounts presented in the Company’s financial statement included in the Original Filing, as filed with the U.S. Securities and Exchange Commission (the "SEC") on April 15, 2008.

This amendment changes the consolidated statements of income for the periods ended December 31, 2007 (the "Original Income Statements") by making adjustment in item "Weighted Average Shares Outstanding" for both basic and diluted from the original filed share numbers of 24,923,178 and 24,923,178, to 22,554,210 and 23,177,268, respectively. Accordingly, the value of the earnings per share has been changed from the original $0.39 as basic and $0.39 as diluted, to $0.43 as basic and $0.42 as diluted, respectively.

The above adjustment is due to clerical error in preparing the financial statements. No other material information in the Original Filing is amended hereby. This Form 10-K/A continues to describe conditions as of the date of the Original Filing, and accordingly, the Company has not updated the disclosures contained herein to reflect events that occurred at a later date, except for disclosures of certain tax law updates in Note 10 to Consolidated Financial Statement. Pursuant to Rule 12b-15 (the "Rule 12b-15) under the Securities Exchange Act of 1934, as amended, this Amendment contains the complete text of the items of the Original Filing that are being amended and restated, in addition to the text of the unaffected items or exhibits.

As required by Rule 12b-15, the Company’s principal executive officer and principal financial officer are providing Rule 13a-14(a) certifications in connection with this Form 10-K/A (but otherwise identical to their prior certifications) and are also furnishing, but not filing, Rule 13a-14(b) certifications in connection with this Form 10-K/A (but otherwise identical to their prior certifications).

PART IV.

Item 15. Exhibits And Financial Statement of Schedules

Exhibit No.	Description
31.1	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief 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 Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

3

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.  

		AMERICAN LORAIN CORPORATION
April 15, 2008		By:/s/  Si Chen
(Date Signed)		Si Chen, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.  

Signature		Capacity		Date
/s/ Si Chen		President , Director and Chief Executive Officer (Principal Executive Officer)		April 16, 2008
Si Chen
/s/ Jing Thomas Wu		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)		April 16, 2008
Jing Thomas Wu

4

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AMERICAN LORAIN CORPORATION

AUDITED FINANCIAL STATEMENTS

DECEMBER 31, 2007, 2006, AND 2005

(Stated in US Dollars)

 

 

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AMERICAN LORAIN CORPORATION

CONTENTS	PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F1
CONSOLIDATED BALANCE SHEETS	F2– F3
CONSOLIDATED STATEMENTS OF INCOME	F4
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY	F5
CONSOLIDATED STATEMENTS OF CASH FLOWS	F6
NOTES TO FINANCIAL STATEMENTS	F7–F24

 

 

 

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REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM

To:  

The Board of Directors and Stockholders of
American Lorain Corporation

We have audited the accompanying consolidated balance sheets of American Lorain Corporation as of December 31, 2007, 2006, and 2005, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Lorain Corporation as of December 31, 2007, 2006, and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

South San Francisco, California
February 26, 2008

Samuel H. Wong & Co., LLP
Certified Public Accountants

F-1

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AMERICAN LORAIN CORPORATION

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007, 2006, AND 2005
(Stated in US Dollars)

	Note		2007		2006		2005
ASSETS
Current assets
Cash and Cash equivalents		$	6,769,973	$	2,290,676	$	7,429,038
Restricted Cash	3		2,021,839		2,549,321		2,838,067
Short-term Investment			7,246		26,620		16,476
Trade accounts receivable	4		32,859,688		11,805,231		7,992,923
Other receivables	5		7,552,976		4,683,630		6,336,056
Inventory	6		17,903,344		12,294,354		15,451,754
Advance to Suppliers			5,357,951		2,406,160		2,807,961
Prepaid Expenses and Taxes			916,774		38,375		-
Total current assets		$	73,389,790	$	36,094,367	$	42,872,275
Property, plant and equipment, net	7		24,022,181		13,517,908		10,289,333
Land use rights, net	8		3,047,021		2,777,475		1,331,751
TOTAL ASSETS		$	100,458,992	$	52,389,750	$	54,493,359
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term bank loans	9	$	24,077,504	$	23,137,648	$	22,675,029
Notes payable	10		2,734,444		3,466,581		3,765,452
Accounts payable			6,251,833		2,327,620		3,275,965
Income tax payable			1,121,528		402,216		305,021
Current maturities of long term debts	12		-		5,117		-
Accrued liabilities and other payables	11		16,784,108		2,570,263		2,765,249
Customers deposits			957,642		843,091		489,675
Total current liabilities		$	51,927,058	$	32,752,536	$	33,276,391
Long-term bank loans	12		102,542		105,560		-
TOTAL LIABILITIES		$	52,029,600	$	32,858,096	$	33,276,391

The accompanying notes are an integral part of these financial statements.

F-2

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AMERICAN LORAIN CORPORATION

CONSOLIDATED BALANCE SHEETS (Continued)
AS OF DECEMBER 31, 2007, 2006, AND 2005
(Stated in US Dollars)

	Note		2007		2006		2005
Minority interests	13	$	3,887,021	$	2,922,355	$	2,500,186
STOCKHOLDERS’ EQUITY
Common Stock, $0.001 par value, 200,000,000 shares authorized; 24,923,178 and 17,932,777 shares issued and outstanding as of December 31, 2007, 2006, and 2005	14		24,923		17,933		17,933
Additional paid-in-capital			24,187,268		6,846,620		11,820,441
Statutory reserves			4,497,647		4,439,604		2,787,212
Retained earnings			13,985,824		4,298,947		3,593,433
Accumulated other comprehensive
Income			1,846,708		1,006,195		497,763
		$	44,542,370	$	16,609,299	$	18,716,782
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	100,458,992	$	52,389,750	$	54,493,359

The accompanying notes are an integral part of these financial statements.

F-3

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AMERICAN LORAIN CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
(Stated in US Dollars)

	Note		2007		2006		2005
Net revenues		$	82,094,963	$	49,560,957	$	30,195,144
Cost of revenues			(61,932,474)		(37,533,260)		(22,250,332)
Gross profit		$	20,162,490	$	12,027,697	$	7,944,812
Operating expenses
Selling and marketing expenses			(2,623,138)		(1,440,941)		(1,089,423)
General and administrative expenses			(2,864,813)		(1,932,729)		(1,197,962)
Operating Income		$	14,674,539	$	8,654,027	$	5,657,427
Investment income			4,769		-		-
Government subsidy income			1,373,280		481,403		319,530
Interest income			209,010		165,648		122,077
Other income			155,467		-		-
Other expenses			(1,445,780)		(133,635)		(18,344)
Interest Expense			(2,376,088)		(1,834,246)		(1,518,518)
Earnings before tax		$	12,595,196	$	7,333,197	$	4,562,172
Income tax	15		(2,134,916)		(1,064,379)		(324,580)
Income before minority interests		$	10,460,279	$	6,268,818	$	4,237,592
Minority interests			(715,359)		(340,328)		(22,915)
Net income			9,744,920		5,928,490		4,214,677
Earnings per share
Basic		$	0.43	$	0.33	$	0.24
Diluted		$	0.42	$	0.33	$	0.24
Weighted average shares outstanding
Basic			22,554,210		17,932,778		17,932,778
Diluted			23,177,268		17,932,778		17,932,778

The accompanying notes are an integral part of these financial statements.

F-4

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AMERICAN LORAIN CORPORATION

STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005 (Stated in US Dollars)
 

						Accumulated
	Number		Additional			Other
	of	Common	Paid-in	Statutory	Retained	Comprehensive
	Shares	Stock	Capital	Reserves	Earnings	Income	Total
Balance, January 1, 2005	17,932,777	17,933	2,938,639	2,416,659	8,874,915	55,942	14,304,088
Net Income		-			4,214,677		4,214,677
Increase in APIC from the increase in registered capital in the PRC, net of minority interest		-	8,881,802				8,881,802
Appropriations to Statutory Reserves		-		370,553	(370,553)		0
Dividends		-			(9,125,607)		(8,683,786)
Foreign Currency Translation Adjustment		-				441,821	-
Balance, December 31, 2005	17,932,777	17,933	11,820,441	2,787,212	3,593,433	497,763	18,716,781
Balance, January 1, 2006	17,932,777	17,933	11,820,441	2,787,212	3,593,433	497,763	18,716,781
Net Income		-			5,928,490		5,928,490
Consolidation elimination of investments in subsidiaries against APIC		-	(4,973,821)				(4,973,821)
Appropriations to Statutory Reserves		-		1,652,393	(1,652,393)		-
Dividends		-			(3,570,583)		(3,570,583)
Foreign Currency Translation Adjustment		-				508,432	508,431
Balance, December 31, 2006	17,932,777	$ 17,933	$ 6,846,620	$ 4,439,604	$ 4,298,947	$ 1,006,195	$ 16,609,299
Balance, January 1, 2007	17,932,777	$ 17,933	$ 6,846,620	$ 4,439,604	$ 4,298,947	$ 1,006,195	$ 16,609,299
Issuance of Common Stock for Cash	6,990,401	6,990	17,340,648				17,347,638
Net Income					9,744,920		9,744,920
Appropriations to Statutory Reserves				58,043	(58,043)		-
Foreign Currency Translation Adjustment						840,513	840,513
Balance, December 31, 2007	24,923,178	24,923	24,187,268	4,497,647	13,985,824	1,846,708	44,542,370

	Comprehensive		Comprehensive		Comprehensive
	Income		Income		Income
	2007		2006		2005		Totals
Net Income	9,744,920		5,928,490		4,214,677		19,888,087
Foreign Currency Translation Adjustment	840,513		508,431		441,821		1,790,765
	10,585,433		6,436,921		4,656,498		21,678,852

The accompanying notes are an integral part of this financial statements.

F-5

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AMERICAN LORAIN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
(Stated in US Dollars)

		2007		2006		2005
Cash flows from operating activities
Net income	$	9,744,920	$	5,928,490	$	4,214,677
Minority interest		964,666		340,328		22,914
Fire Loss		1,392,379		-		-
Depreciation		802,927		579,736		515,495
Amortization		17,798		48,038		33,468
(Increase)/decrease in accounts & other receivables		(23,809,252)		(1,840,469)		(13,270,141)
(Increase)/decrease in inventories		(8,560,781)		3,587,757		(786,131)
Increase/(decrease) in accounts and other payables		15,862,094		(673,977)		8,829,105
Net cash (used in)/provided by operating
activities	$	(3,585,249)	$	7,969,903	$	(440,613)
Cash flows from investing activities
Purchase of plant and equipment		(7,657,346)		(3,421,639)		(1,791,731)
Purchase of biological assets		(2,784,136)		-		-
Increase of construction in progress		(2,258,097)		-		-
(Increase)/decrease in restricted cash		527,482		373,788		(1,210,599)
Payment of land use rights		(287,344)		(1,421,291)		(6,492)
Investments in securities		19,374		(7,857,172)		(6,461)
Net cash used in investing activities	$	(12,440,067)	$	(12,326,314)	$	(3,015,283)
Cash flows from financing activities
Issue of common stock		17,347,638		2,855,765		11,501,969
Dividend paid		-		(3,575,032)		(9,125,596)
Bank borrowings		25,645,795		24,744,115		22,460,266
Bank repayment		(23,329,333)		(24,946,473)		(18,903,904)
Net cash provided by/(used in) financing
Activities	$	19,664,100	$	(921,625)	$	5,932,735
Net in cash and cash equivalents
(used)/sourced		3,638,784		(5,278,036)		2,476,839
Effect of foreign currency translation on cash
and cash equivalents		840,513		139,674		200,061
Cash and cash equivalents–beginning of year		2,290,676		7,429,038		4,752,138
Cash and cash equivalents–end of year	$	6,769,973	$	2,290,676	$	7,429,038
Supplementary cash flow information:
Interest received	$	209,010	$	165,648	$	122,077
Interest paid		2,293,442		1,791,272		1,559,400
Taxes Paid		740,943		-		-

The accompanying notes are an integral part of these financial statements.

F-6

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

1.

ORGANIZATION, BASIS OF PRESENTATION, AND PRINCIPAL ACTIVITIES

(a)

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

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

(b)

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.

(c)

Reverse-Merger

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

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

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

F-7

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

(d)

Business Activities

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

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)

Method of Accounting

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

(b)

Principles of consolidation

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

As of December 31, 2006, 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

F-8

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

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 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.

F-9

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

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.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

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

(h)

Construction in progress

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

(i)

Investment securities

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

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

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

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.

F-10

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(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 pro forma consolidated statement of income as incurred.

(r)

Income taxes

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years.  Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.

F-11

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(s)

Statutory reserves

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

(t)

Foreign currency translation

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

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

(u)

Revenue recognition

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

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

(v)

Earnings per share

Basic earnings per share is computed by dividing net income by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the sum of the weighted average number of ordinary shares outstanding and dilutive potential ordinary shares during the years.  During the years ended 2007, 2006, and 2006, no dilutive potential ordinary shares were issued.

F-12

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

The Company computes earnings per share (“EPS”) in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per share” (“SFAS No. 128”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies with

complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

(w)

Commitments and contingencies

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

(x)

Comprehensive income

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

(y)

Recent accounting pronouncements

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

F-13

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

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

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

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

F-14

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(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

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

5.  

OTHER RECEIVABLES

Other receivables at December 31st consisted of the following: -

F-15

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

6.  

INVENTORIES

Inventories consisted of the following as December 31:

7. 

PROPERTY, PLANT, AND EQUIPMENT

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

F-16

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

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

Landscaping, plant and tree is chestnut trees investment in the development of agricultural operations, which have not been the significant source of the raw materials needed for the Company’s operations to date.

8.  

LAND USE RIGHTS, NET

Land use rights at June 30, 2007 and December 31^st consisted of the following: -

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

9.

SHORT-TERM DEBTS

Short-term debts are as follows: -

F-17

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

F-18

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

F-19

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

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

All overdue loans were extended by its financial institution.

10.  

NOTES PAYABLE

Notes payable at December 31^st consisted of the following: -

All overdue notes were extended by its financial institution.

F-20

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

11.

ACCRUED EXPENSES AND OTHER PAYABLE

Accrued expenses and other payables at December 31^st consisted of the following: -

12.

LONG-TERM DEBTS

Interest expenses for the loans were $2,293,442 for the year December 31, 2007.

F-21

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

13.  

MINORITY INTERESTS

This represents the 19.8% equity of Shangdong Lorain held by a state-owned interest, Shandong Economic Development Investment Corporation.

14.  

CAPITALIZATION

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

F-22

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

15.  

INCOME TAXES

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

Effective January 1, 2008, PRC government implements 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.

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

F-23

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AMERICAN LORAIN CORPORATION

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2007, 2006 AND 2005
(Stated in US Dollars)

16.  

SALES BY PRODUCT TYPE

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

Revenue by geography at December 31, as follow:

*The regions listed above are for direct sale only but not including the regions where our products would be re-sold by our customers.

F-24

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Exhibit Index

Exhibit No.	Description
31.1	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief 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 Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

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