Planet Green Holdings Corp. - Quarter Report: 2007 September (Form 10-Q)

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: September 30, 2007

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

Commission File No. 0-31619

AMERICAN LORAIN CORPORATION

(Exact name of registrant as specified in its charter)

Beihuan Zhong Road

Junan County

Shandong, China 276600

(Address of principal executive offices)

(86) 539-7318818

(Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  

Yes    X     No        

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

Large accelerated filer ___            Accelerated filer ___            Non-accelerated filer   X     

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

 Yes           No     X    

The numbers of shares outstanding of each of the issuer's classes of common equity, as of November 13, 2007, are as follows:

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

See notes to consolidated financial statements and accountant's report

1

See notes to consolidated financial statements and accountant's report

2

AMERICAN LORAIN CORPORATION

See notes to consolidated financial statements and accountant's report

3

See notes to consolidated financial statements and accountant's report

4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
(Stated in US Dollars)

1.

ORGANIZATION, BASIS OF PRESENTATION, AND PRINCIPAL ACTIVITIES

5

(d)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6

7

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.

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3.

RESTRICTED CASH

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

11

4.

TRADE ACCOUNTS RECEIVABLE

6.

PROPERTY, PLANT, AND EQUIPMENT

12

Construction in progress is mainly comprised of capital expenditures for construction of the Company's new corporate campus, including offices, factories, and staff dormitories.

8.

CAPITALIZATION

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9.

OTHER EXPENSES

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PART I. ITEM. 2 Management's Discussion and Analysis of Financial Condition and Results of Operations

Caution Regarding Forward-Looking Information

Certain statements contained in this quarterly filing, including, without limitation, statements containing the words "believes", "anticipates", "expects" and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business  disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.

Given these uncertainties, readers of this Form 10-QSB and investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Overview

We are a Delaware corporation that was incorporated on February 4, 1986 and we are headquartered in Shandong Province, China.  From our inception in 1986 until May 3, 2007, when we completed a reverse acquisition transaction with Lorain Holding, we were a blank check company and did not engage in active business operations other than our search for, and evaluation of, potential business opportunities for acquisition or participation.

We develop, manufacture and sell convenience foods. Convenience foods like cut fruit and premixed salads, which are known as lightly processed -- our convenience foods include ready-to-cook (or RTC) meals, ready-to-eat (or RTE) meals and meals ready-to-eat (or MREs), chestnut products, and frozen, canned and bulk foods, in hundreds of varieties.  We operate through our indirect Chinese subsidiaries.  Our products are sold in 19 provinces and administrative regions in China and 23 foreign countries.

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

Lorain Holding was incorporated in the Cayman Islands in August 2006.  Lorain Holding presently has two direct, wholly-owned Chinese operating subsidiaries: Luotian Lorain and Junan Hongrun, one indirect wholly owned operating subsidiary, Beijing Lorain, and one majority-owned subsidiary, Shandong Lorain, which is 80.2% owned by us (with Shandong Economic Development Investment Co. Ltd. owning the remaining 19.8% interest).  We sometimes refer to these four Chinese operating subsidiaries as the Lorain Group Companies or the Group.

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Recent Developments  

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

In the second quarter of 2007, Shandong Lorain began to work on constructing an egg-processing workshop, the estimated cost of which is 14 million RMB (approximately U.S. $1.81 million). By the end of third quarter of 2007, seventy percent (70%) of the construction of the egg-processing workshop has been completed. We anticipate that the facility will be completed and production will begin by the end of calendar 2007. During the same period, Shandong Lorain also worked on constructing a sewage plant, for which 1.45 million RMB (approximately U.S. $0.18 million) was spent. The project was completed and began operations in October, 2007.

Uncertainties that Affect our Financial Condition  

We do not have any material uncertainties that affect our financial condition as of September 30, 2007.

Results of Operations

Three months Ended September 30, 2007 Compared to Three months Ended September 30, 2006

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

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

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Net Revenues.   Our net revenues for the three months ended September 30, 2007 were $22.83 million, which is approximately $10.12 million or 79.64% more than revenues during the same period in 2006, which were $12.71 million. This increase was mainly attributable to increased sales resulting from the continuing advancement of our marketing strategies to enhance our competitive advantages, the significant adjustment of our operation structures, and expansion of our sales markets.

Cost of Revenues.   Our cost of goods sold, which consists of raw materials, direct labor and manufacturing overhead expenses, was $18.12 million for the three month period ended September 30, 2007, an increase of $8.45 million or 87.33%, as compared to $9.67 million for the three month period ended September 30, 2006. This increase was mainly attributable to increased volume of products sold.  

Gross Profit.   Our gross profit increased $1.67 million, or 55.14% to $4.71 million for the three months ended September 30, 2007 from $3.04 million for the same period in 2006.  This increase was mainly attributable to the increase in sales. Gross profit as a percentage of net revenues was 20.64% for the three months ended September 30, 2007, as compared to 23.90% during the same period in 2006. The decrease of gross profit as a percentage of net revenues was due to the increased domestic sales with a lower profit margin in 2007 compared to the same period of 2006.

Selling and Marketing Expenses.   Selling and marketing expenses increased $0.47 million, or 132.98% to $0.82 million for the three months ended September 30, 2007 from $0.35 million for the same period in 2006.  This increase mainly resulted from increased transportation cost for the increase of the sale volume.  

General and Administrative Expenses.   General and administrative expenses increased $0.68 million, or 167.29% to $1.08 million for the three months ended September 30, 2007 from $0.41 million for the same period of 2006.  The increase of general and administrative expenses was primarily attributable to (1) the increased salary and compensation for managerial personnel and (2) the increased budget to overall employees' benefits.

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Income Before Income Taxes and Minority Interest.   Income before income taxes and minority interest increases $0.54 million or 23.62% to $2.85 million for the three months ended September 30, 2007 from $2.31 million for the same period of 2006.  The increase was primarily attributed to the substantial increase of revenues.

Income Taxes.  Income taxes increased $0.19 million or 114.71% to $0.36 million for the three months ended September 30, 2007 from $0.17 million for the same period of 2006.  The increase of tax paid was primarily a result of higher income achieved in this period.

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

Net Income.   Net income increased $0.56 million , or 29.67% to $2.44 million for the three months ended September 30, 2007 from $1.88 million for the same period of 2006.

Nine months Ended September 30, 2007 Compared to Nine months Ended September 30, 2006

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

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Net Revenues.   Net Revenues.   Our net revenues for the nine months ended September 30, 2007 were $48.08 million, which is approximately $20.27 million or 72.932% more than for the same period in 2006, where we had revenues of $27.80 million. The increased revenues were attributable to increased sales as a result of expansion of our customer base, an increase in marketing activities, an adjustment to our operational structure, and an expansion of our sales network.

Cost of Revenues.   Our cost of goods sold, which consists of raw materials, direct labor and manufacturing overhead expenses, was $37.46 million for the nine month period ended September 30, 2007, an increase of $16.06 million or 75.07%, as compared to $21.40 million for the nine month period ended September 30, 2006.  The cost of goods sold increased because the overall sales volumes in the first nine months of 2007 increased as compared to the same period ended September 30, 2006.

Gross Profit.   Our gross profit increased $4.21 million, or 65.76% to $10.61 million for the nine months ended September 30, 2007 from $6.4 million for the same period in 2006.  This increase was attributable to an overall increases in sales, and in particular, the substantial increase in the percentage of domestic products we sold, in the three months period ended September 30, 2007, compared to the same period of 2006. Gross profit as a percentage of net revenues was 22.07% for the nine months ended September 30, 2007, as compared to 23.02% during the same period in 2006. The decrease of gross profit as a percentage of net revenues was due to the increased domestic sale volume with a lower profit margin 2007 compared to the same period of 2006.

Selling and Marketing Expenses.   Selling and marketing expenses increased $0.27 million, or 27.56% to $1.25 million for the nine months ended September 30, 2007 from $0.98 million for the same period in 2006.  This increase mainly resulted from increased transportation cost for increased sales volume.

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General and Administrative Expenses.   General and administrative expenses increased $0.82 million, or 76.4% to $1.90 million for the nine months ended September 30, 2007 from $1.08 million for the same period of 2006.  The increase of general and administrative expenses was primarily attributable to increased travel and lodging expenses associated with increased sales promotion activities and to increases salary and compensation of our managerial staffs.

Income Before Income Taxes and Minority Interest.   Income before income taxes and minority interest increased $1.30 million or 35.9% to $4.91 million for the nine months ended September 30, 2007 from $3.61 million for the same period of 2006.  The increase was primarily a result of the higher revenue during the nine month period ended on September 30, 2007 as compared to 2006.

Income Taxes.  Income taxes increased $0.53 million or 122.86% to $0.97 million for the nine months ended September 30, 2007 from $0.44 million for the same period of 2006.  The increase of tax paid was primarily a result of the substantial increase of income in the nine months period ended September 30, 2007, as compared to the same period of 2006.

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

Net Income.   Net income increased $0.80 million, or 27.49% to $3.72 million for the nine months ended September 30, 2007 from $2.92 million for the same period of 2006.

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Liquidity and Capital Resources

General

As of September 30, 2007, we had cash and cash equivalents (including restricted cash) of $6.88 million. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.
 

Operating Activities

Net cash used in operating activities was $5.83 million for the nine months period ended September 30, 2007, which is an decrease of $15.14 million from net cash provided by operating activities of $9.31million for the same period of 2006.  The decrease of the cash provided by operating activities was primarily a result of the substantial decrease in accounts receivable and other receivables 2007, as compared to the same period in the year of 2006.

Investing Activities
 

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

Net cash used by investing activities for the nine months period ended September 30, 2007 was $ 5.4 million, which is an decrease of $4.48 million from net cash used in investing activities of $9.88 million for the same period of 2006. The decrease was primarily due to the decrease in restricted cash in 2007, as compared to the year of 2006.

Financing Activities

Net cash provided by financing activities for the nine months period ended September 30, 2007 was $18.11 million, which is an increase of $23.05million from $4.94 million net cash used in financing activities during the same period of 2006.  The increase of the cash provided by financing activities was primarily a result of the increase of additional paid-in capital, resulting from the private placement transaction that closed in May, 2007.

Loan Facilities  

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

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

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¹ Two of the loans listed in the table above have stated expirations prior to September 30, 2007. These loans were disbursed under a special aid development program and were not required to be repaid by their stated expiration date. We are not in default on these loans.  We intend to repay the loans in accordance with the special aid development program's terms and conditions.

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As shown in the above table, we have $22.14 million in loans maturing on or before the end of September 30, 2008. We plan to repay this debt either as it matures or refinance this debt with other debt.

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

Obligations under Material Contracts

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

Critical Accounting Policies

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

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

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

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

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

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

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the reporting periods, there was no impairment loss.

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 collectability 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.

Recent accounting pronouncements

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

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

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

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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.

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

Seasonality

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

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to our short-term bank loans.  Although the interest rates are fixed for the terms of the loans, the terms are typically 12 months and interest rates are subject to change upon renewal.  Since September 16, 2007 China People's Bank has increased the interest rate of RMB bank loans with a term of 6 months or less by 0.27%, and loans with a term of 6 to 12 months by 0.27%. The new interest rates are 6.48% and 7.29% for RMB bank loans with a term 6 months or less and loans with a term of 6-12 months, respectively.  The change in interest rates has no impact on our bank loans that were made before September 15, 2007.  Management monitors the banks' interest rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

Foreign Exchange Risk

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

Inflation

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

ITEMS 4 AND 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

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

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Internal Control Over Financial Reporting.

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

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

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
   

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Changes in Internal Control Over Financial Reporting.

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

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 1A.  RISK FACTORS

The risks described in Item 1A, Risk Factors, in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, could materially and adversely affect our business, financial condition and results of operations. The risk factors discussed in that Form 10-Q and in this Quarterly Report on Form 10-Q do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations.

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

There were no unregistered sales of equity securities during the quarter ended September 30, 2007.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

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

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

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

ITEM 5. OTHER INFORMATION

N/A

ITEM 6.  EXHIBITS

EXHIBITS.

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SIGNATURES

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

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EXHIBIT INDEX

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