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Planet Green Holdings Corp. - Quarter Report: 2011 September (Form 10-Q)

American Lorain Corp.: Form 10-Q - Filed by newsfilecorp.com

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, 2011

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

For the transition period from ____________ to _____________

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 [X]    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 September 30, 2011 was 34,471,801.


Table of Contents

    Page
  Part I - Financial Information  
Item 1 Financial Statements 2
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Item 3 Quantitative and Qualitative Disclosures about Market Risk 41
Item 4 Controls and Procedures 41
     
  Part II - Other Information  
Item 1 Legal Proceedings 42
Item 1A Risk Factors 42
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 42
Item 3 Defaults Upon Senior Securities 42
Item 4 Removed and Reserved 42
Item 5 Other Information 42
Item 6 Exhibits 42
Signatures   43

1


PART I
FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

AMERICAN LORAIN CORPORATION

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND DECEMBER 31, 2010

(Stated in US Dollars)

 2


AMERICAN LORAIN CORPORATION

CONTENTS PAGES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 4
CONSOLIDATED BALANCE SHEETS 5 - 6
CONSOLIDATED STATEMENTS OF INCOME 7
CONSOLIDATED STATEMENTS OF CASH FLOWS 8 - 9
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  11 - 30

3


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 September 30, 2011 and December 31, 2010, and the related statements of income, stockholders’ equity, and cash flows for the three-month and nine-month periods ended September 30, 2011 and 2010. 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
November 1, 2011 Certified Public Accountants

4



AMERICAN LORAIN CORPORATION
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

                (Audited)  
    Note     At September 30,     At December 31,  
ASSETS         2011     2010  

Current assets

                 

Cash and cash equivalents

  2(d) $  11,439,874   $  12,730,626  

Restricted cash

  3     8,881,019     2,308,898  

Short-term investment

        117,074     9,447,585  

Trade accounts receivable

  4     35,105,826     33,226,612  

Other receivables

  5     6,389,505     1,492,850  

Inventories

  6     34,829,858     29,807,198  

Advance to suppliers

        10,747,976     7,744,976  

Prepaid expenses and taxes

        396,960     434,061  

Deferred tax asset

        107,338     103,713  

Security deposits and other Assets

        628,998     693,858  

Total current assets

      $  108,644,428   $  97,990,377  
                   

Non-current assets

                 

Investment

        469,594     -  

Property, plant and equipment, net

  7     74,819,359     72,095,007  

Land use rights, net

  8     4,929,838     4,877,438  

Deposit

        33,812     20,297  
TOTAL ASSETS       $  188,897,031   $  174,983,119  
                   
LIABILITIES AND STOCKHOLDERS’ EQUITY                  

Current liabilities

                 

Short-term bank loans

  9   $  14,824,640   $  25,164,469  

Long-term debt – current portion

  13     56,743     218,935  

Notes payable

  10     782,656     4,249,977  

Accounts payable

        4,961,054     6,284,532  

Taxes payables

  11     3,146,526     3,266,502  

Accrued liabilities and other payables

  12     1,164,310     1,335,947  

Customers deposits

        33,421     89,370  

Total current liabilities

      $  24,969,350   $  40,609,732  
                   

Long-term liabilities

                 

Long-term debt

  13     15,509,447     5,030,930  
                   
TOTAL LIABILITIES       $  40,478,797   $  45,640,662  

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

5



AMERICAN LORAIN CORPORATION
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

                (Audited)  
    Note     At September 30,     At December 31,  
          2011     2010  
STOCKHOLDERS’ EQUITY                  

Preferred Stock, $.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

- -

 

                 

Common stock, $0.001 par value, 200,000,000 shares authorized; 34,471,801 and 34,419,709 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively

14 34,472 34,420

Additional paid-in capital

  14     52,823,660     52,371,481  

Statutory reserves

  2(r)     12,078,429     11,340,739  

Retained earnings

        60,710,712     48,688,375  

Accumulated other comprehensive income

        14,169,939     9,475,745  

Non-controlling interests

  15     8,601,022     7,431,697  
                   
TOTAL STOCKHOLDER’S EQUITY     $ 148,418,234   $  129,342,457  
                   
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY $ 188,897,031 $ 174,983,119

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

6



AMERICAN LORAIN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(Stated in US Dollars)

          Three months ended     Nine months ended  
          September 30,     September 30,  
    Note     2011     2010     2011     2010  
                               

Net revenues

  2(t),16 $  55,642,041   $  48,073,224   $  121,818,496   $  101,851,754  

Cost of revenues

        (43,291,417 )   (37,293,496 )   (95,036,378 )   (78,629,267 )

Gross profit

      $  12,350,624   $  10,779,728   $  26,782,118   $  23,222,487  
                               

Operating expenses

                             

Selling and marketing expenses

        (2,538,469 )   (2,072,152 )   (4,989,922 )   (4,639,500 )

General and administrative expenses

        (1,611,242 )   (1,643,967 )   (4,680,555 )   (3,592,629 )
          (4,149,711 )   (3,716,119 )   (9,670,477 )   (8,232,129 )
                               

Operating income

      $  8,200,913   $  7,063,609   $  17,111,641   $  14,990,358  

 

                             

Investment income

                             

Government subsidy income

        47,657     321,537     643,009     698,961  

Interest and other income

  22     2,135,832     628,008     2,285,288     759,579  

Other expenses

        (54,269 )   (16,269 )   (235,324 )   (88,506 )

Interest expense

        (550,657 )   (1,127,993 )   (1,813,891 )   (3,071,546 )

 

                             

Earnings before tax

      $  9,779,476   $  6,868,892   $  17,990,723   $  13,288,846  

 

                             

Income tax

  2(q),17   (1,887,950 )   (1,476,363 )   (4,061,371 )   (3,005,959 )

 

                             

Net income

      $  7,891,526   $  5,392,529   $  13,929,352   $  10,282,887  

 

                             

Other comprehensive income:

                             

Foreign currency translation gain

        1,664,668     1,755,844     4,772,659     2,175,729  
                               

Comprehensive income

      $  9,556,194   $  7,148,373   $  18,702,011   $  12,458,616  

 

                             

Net income attributable to:

                             

-Common Stockholders

      $  7,071,288   $  5,084,475   $  12,760,027   $  9,624,619  

-Non-controlling Interest

        820,238     308,054     1,169,325     658,268  

Net income

      $  7,891,526   $  5,392,529   $  13,929,352   $  10,282,887  

 

                             

 

                             

Earnings per share

  2(u), 18                        

- Basic

      $  0.21   $  0.16   $  0.37   $  0.32  

- Diluted

      $  0.20   $  0.16   $  0.37   $  0.31  

 

                             

Weighted average shares outstanding

                             

- Basic

        34,466,144     31,083,710     34,440,483     30,525,487  

- Diluted

        34,605,668     31,679,871     34,754,552     31,221,758  

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

7



AMERICAN LORAIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(Stated in US Dollars)

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2011     2010     2011     2010  

Cash flows from operating activities

                       

Net income

$  7,891,526   $  5,392,529   $  13,929,352   $  10,282,887  

Stock and share based compensation

  146,806     195,868     452,179     650,817  

Depreciation

  333,588     554,385     1,475,523     1,242,370  

Amortization

  41,854     40,053     141,997     109,114  

Write down/(gain) on short-term investment

  (30,702 )   (479,332 )   (78,465 )   (479,332 )

(Increase)/decrease in accounts & other receivables

  (13,203,625 )   (12,081,954 )   (6,831,817 )   (3,787,024 )

(Increase)/decrease in inventories

  6,268,000     (979,407 )   (5,022,660 )   (8,655,050 )

(Increase)/decrease in prepayment

  (2,650,221 )   (5,152,378 )   (2,965,900 )   (4,418,283 )

Increase/(decrease) in deferred tax asset

  (1,237 )   -     (3,625 )   -  

Increase/(decrease) in accounts and other payables

  2,359,115     (2,425,974 )   (1,615,090 )   (4,376,091 )

Net cash (used in)/provided by operating activities

  1,155,104     (14,936,210 )   (518,506 )   (9,430,592 )
                         

Cash flows from investing activities

                       

Shandong Greenpia acquisition net of cash required

  -     (1,929,773 )   -     (1,929,773 )

Sales/(purchase) of short-term investments

  (807,647 )   (183,966 )   1,358,573     (161,739 )

(Increase)/decrease in restricted cash

  (1,816,892 )   (103,792 )   (6,572,121 )   454,656  

Payment of construction in progress

  (507,155 )   -     (978,260 )   -  

Payment of land use rights

  (60,047 )   (72,466 )   (194,397 )   (105,671 )

Payments for purchase of equipment & plant

  (874,224 )   (1,295,379 )   (3,221,615 )   (11,341,132 )

Decrease/(increase) in deposit

  136,099     -     51,345     -  

Sales /(purchase) of land investment

  7,502,344     -     7,502,344     -  
Net cash used in investing activities   3,572,478     (3,585,376 )   (2,054,131 )   (13,083,659 )

Cash flows from financing activities

                       

Bank borrowings

  3,853,879     41,717,825     22,036,891     64,869,426  

Repayment of bank loans

  (5,278,540 )   (32,736,075 )   (22,060,396 )   (53,597,904 )

Proceeds from issuance of notes

  -     716,621     782,656     716,621  

Repayment of notes

  (3,085,517 )   -     (4,249,977 )   -  

Issue of common stock

  27     8,693,478     52     8,693,478  

Net cash provided by/(used in) financing activities

$  (4,510,151 ) $  18,391,849   $  (3,490,774 ) $  20,681,621  
                         

Net Increase/(decrease) of Cash and Cash Equivalents

  217,431     (129,737 )   (6,063,411 )   (1,832,630 )

Effect of foreign currency translation on cash and cash equivalents

1,616,905 1,676,496 4,772,660 1,606,648

 

                       

Cash and cash equivalents–beginning of period/year

  9,605,539     10,338,791     12,730,626     12,111,532  

Cash and cash equivalents–end of period/year

$  11,439,874   $  11,885,550   $  11,439,874   $  11,885,550  

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

8



AMERICAN LORAIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(Stated in US Dollars)

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2011     2010     2011     2010  

Supplementary cash flow information:

                       

Interest received

$  26,171   $  5,096   $  36,526   $  11,898  

Interest paid

$  502,519   $  991,634   $  1,766,318   $  2,930,588  

Income taxes paid

$  1,116,795   $  856,944   $  4,962,052   $  3,346,075  

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

9



AMERICAN LORAIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE PERIOD ENDED SEPTEMBER 30, 2011 AND YEAR ENDED DECEMBER 31, 2010
(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, 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

7,000 7 890,203 - - - - 890,210

Issuance of common stock for cash

  3,440,800     3,441     9,630,800     -     -     -     -     9,634,241  

Issuance cost of common stock

  -     -     (678,567 )   -     -     -     -     (678,567 )

Appropriations to additional paid in capital

- - 5,161,175 - (5,161,175 ) - - -

Acquisition of Shandong Greenpia

  731,707     732     2,099,267     -     -     -     -     2,099,999  

Net income

  -     -     -     -     19,248,277     -     -     19,248,277  

Appropriations to statutory reserves

  -     -     -     2,445,262     (2,445,262 )   -     -     -  

Allocation to non-controlling interests

- - - - (1,408,814 ) - 1,408,814 -

Unrealized gain (loss) on investment

  -     -     -     -     -     (587,117 )   -     (587,117 )

Foreign currency translation adjustment

- - - - - 3,994,293 - 3,994,293

Balance, December 31, 2010

  34,419,709   $  34,420   $ 52,371,481   $ 11,340,739   $  48,688,375   $  9,475,745   $  7,431,697   $  129,342,457  

 

                                               

Balance, January 1, 2011

  34,419,709   $  34,420   $ 52,371,481   $ 11,340,739   $  48,688,375   $  9,475,745   $  7,431,697   $  129,342,457  

Issuance of share based compensation

- - 452,179 - - - - 452,179

Issuance of common stock

  52,092     52     -     -     -     -     -     52  

Net income

  -     -     -     -     13,929,352     -     -     13,929,352  

Appropriations to statutory reserves

  -     -     -     737,690     (737,690 )   -     -     -  

Allocation to non-controlling interests

- - - - (1,169,325 ) - 1,169,325 -

Unrealized gain (loss) on investment

  -     -     -     -     -     (78,465 )   -     (78,465 )

Foreign currency translation adjustment

- - - - - 4,772,659 - 4,772,659

Balance, September 30, 2011

  34,471,801     34,472     52,823,660     12,078,429     60,710,712     14,169,939     8,601,022     148,418,234  

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

10



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(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 “ALN”) was originally 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. On May 3, 2007, the Company entered into a share exchange agreement as described under “Reverse-Merger” below. On November 12, 2009, the Company filed a statement of merger in the state of Nevada to transfer the Company’s jurisdiction from Delaware to Nevada.

     
  (b)

Organization History of International Lorain Holding Inc. and its subsidiaries

     
 

ALN owns 100% of the equity of International Lorain Holding Inc. (“ILH”). ILH is a Cayman Islands company incorporated on August 4, 2006 and was wholly-owned by Mr. Hisashi Akazawa until May 3, 2007. ILH presently has two direct wholly-owned subsidiaries, Junan Hongrun and Luotian Lorain, and three indirectly wholly-owned subsidiaries through Junan Hongrun, which are Beijing Lorain, Dongguan Lorain, and Shandong Greenpia Foodstuff Co., Ltd. (“Shandong Greenpia”).

     
 

In addition, the Company directly and indirectly has 80.2% ownership of Shandong Lorain. The other 19.8% interest is owned by the State under the name of Shandong Economic Development Investment Co. Ltd., which 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.

     
 

On June 28, 2010, the Company signed an equity transfer agreement with Shandong Greenpia. Shandong Greenpia was originally directly owned by Taebong Inc. and Shandong Luan Trade Company. The Company paid $2,100,000 to Korean Taebong Inc. for 50% equity of Shandong Greenpia on September 20, 2010. On September 23, 2010, the Company issued 731,707 shares of restricted stock at an agreed price of $2.87 per share to the owner of Shandong Luan Trade Company, Mr. Ji Zhenwei, for the remaining 50% equity of Shandong Greenpia. Since September 23, 2010, Shandong Greenpia was directly owned by both Junan Hongrun and ILH. As a result, Shandong Greenpia is 100% 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 (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 sometimes referred to hereafter as the “reverse-merger transaction.” The share exchange transaction has been accounted for as a recapitalization of ALN 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.

11



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

  (d)

Business Activities

     
 

The Company develops, manufactures, and sells convenience foods (including 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.


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.

     
 

The Company regrouped certain accounts in its presentation of changes in assets and liabilities in the statement of cash flows for the three and nine months periods ended September 30, 2011 in order to be consistent with the presentation provided for the three and nine months periods ended September 30, 2010. There was no impact in earnings for the regrouping.

     
  (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 September 30, 2011, the detailed identities of the consolidating subsidiaries are as follows:


      Place of     Attributable equity     Registered  
  Name of Company   incorporation     interest %     capital  
  Shandong Lorain Co., Ltd   PRC     80.20   $  15,787,744  
  Luotian Lorain Co., Ltd   PRC     100     3,964,749  
  Junan Hongrun Foodstuff Co., Ltd   PRC     100     46,834,155  
  Beijing Lorain Co., Ltd   PRC     100     1,565,313  
  Shandong Greenpia Foodstuff Co.,Ltd   PRC     100     2,404,320  
  Dongguan Lorain Co,,Ltd   PRC     100     156,531  
  International Lorain Holding Inc.   Cayman Islands     100     48,710,564  

  (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)

Cash and cash equivalents

     
 

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

12



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

  (e)

Investment securities

     
   

The Company classifies securities it holds for investment purposes 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.

     
  (f)

Trade accounts receivables

     
   

Trade accounts 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.

     
  (g)

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.

     
  (h)

Customer deposits and advances to suppliers

     
   

Customer deposits were received from customers in connection with orders of products to be delivered in future periods.

     
   

Advances to suppliers are good faith deposits paid to suppliers for the purpose of committing suppliers to provide products promptly upon delivery of the Company’s purchase order for raw materials, supplies, equipment, building materials etc. Pursuant to the Company’s arrangements with its suppliers, this deposit is generally 20% of the total amount contracted for. This type of transaction is classified as a prepayment category under the account name “Advance to Suppliers” until such time as the Company’s purchase order is delivered, at which point this account is reduced by reclassification of the applicable amount to the appropriate asset account such as inventory or fixed assets or construction in progress.

     
  (i)

Property, plant and equipment, net

     
 

Property, plant and equipment, net 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 property, plant and equipment are as follows:

13



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

  Buildings 40 years
  Landscaping, plant and tree 30 years
  Machinery and equipment 10 years
  Motor vehicles 10 years
  Office equipment 5 years

 

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

     
  (j)

Construction in progress

     
 

Construction in progress represents direct and indirect construction or acquisition costs. 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 the asset is completed and ready for intended use.

     
  (k)

Land Use Rights

     
 

Land use rights are carried at cost and amortized on a straight-line basis over a specified period.

     
  (l)

Accounting for the Impairment of Long-Lived Assets

     
 

The long-lived assets held 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. An impairment is present if carrying amount of an asset is less than its undiscounted cash flows to be generated.

     
 

If an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company believes no impairment has occurred to its assets during 2010 and through September 30, 2011.

     
  (m)

Advertising

     
 

All advertising costs are expensed as incurred.

     
  (n)

Shipping and handling

     
 

All shipping and handling are expensed as incurred.

     
  (o)

Research and development

     
 

All research and development costs are expensed as incurred.

     
  (p)

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.

     
  (q)

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.

14



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

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

      Taxable Income  
  Rate   Over     But Not Over     Of Amount Over  
  15%   0     50,000     0  
  25%   50,000     75,000     50,000  
  34%   75,000     100,000     75,000  
  39%   100,000     335,000     100,000  
  34%   335,000     10,000,000     335,000  
  35%   10,000,000     15,000,000     10,000,000  
  38%   15,000,000     18,333,333     15,000,000  
  35%   18,333,333     -     -  

  (r)

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. The Company transferred $737,690 and $2,445,262 from retained earnings to statutory reserves for the periods ended September 30, 2011 and December 31, 2010. PRC laws prescribe that an enterprise operating at a profit, must appropriate, on an annual basis, an amount equal to 10% of its profit. Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered capital.

     
  (s)

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.

15



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

      9/30/2011     12/31/2010     9/30/2010  
  Year/quarter end RMB : US$ exchange rate   6.3885     6.6118     6.6981  
  Average yearly/quarterly RMB : US$ exchange rate 6.4884 6.7788 6.8164

 

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 Dollars at the rates used in translation.

     
  (t)

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). The Company allows its customers to return products if they are defective. However, this rarely happens and amounts returned have been de minimis.

     
 

The Company gradually switched its sales model from direct sales to third party distributor model and issues 1% sales incentive to distributors. The Company modified it accounting policy for the recognition of revenue accordingly. Given the circumstances of how the Company conducts its incentive program, the Company books the payments settled in cash as a contra-account to Gross Revenue, and includes the amount in its reported “net revenue”. The Company has considered the guidance in FASB ASC 605-50 (EITF 01-9) and will account for its sales incentive program accordingly.

     
  (u)

Earnings per share

     
 

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net income by the sum of the weighted average number of ordinary shares outstanding and potential dilutive securities during the year. During the period ended September 30, 2011, no warrants were issued and no stock options were granted. During the year ended December 31, 2010, 81,155 warrants were issued to certain service providers. During the year ended December 31, 2009, 1,334,573 stock options were granted to employees pursuant to the Company’s equity incentive plan and; 2,255,024 warrants were issued to investors in connection with a PIPE financing. These warrants and options could be potentially dilutive if the market price of the Company’s common stock exceeds the exercise price for these securities.

     
 

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.

     
  (v)

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.

16



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

  (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 includes the foreign currency translation adjustment and unrealized gain or loss.

     
  (y)

Recent accounting pronouncements

     
 

In January 2011, the FASB issued an Accounting Standard Update (“ASU”) No. 2011-01, “Receivables Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The amendments in this Update apply to all public-entity creditors that modify financing receivables within the scope of the disclosure requirements about troubled debt restructurings in Update 2010-20. Under the existing effective date in Update 2010-20, public- entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. This new accounting standard is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.

     
 

In June 2011, the FASB issued an Accounting Standard Update (“ASU” No. 2011-05, “Comprehensive Income (Topic 220). Under the amendments to Topic 220, Comprehensive Income, entities have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This new accounting standard is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.


3.

RESTRICTED CASH

17



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

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


      9/30/2011     12/31/2010  
  Trade accounts receivable $  35,595,007   $  33,562,514  
  Less: Allowance for doubtful accounts   (489,181 )   (335,902 )
    $  35,105,826   $  33,226,612  

  Allowance for bad debt:   9/30/2011     12/31/2010  
  Beginning balance $  (335,902 ) $  (267,590 )
  Additions to allowance   (153,278 )   (68,312 )
  Reversal of allowance   -     -  
  Ending balance $  (489,181 ) $  (335,902 )

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 RECEIVABLES

   

Other receivables consisted of the following as of September 30, 2011 and December 31, 2010:


      9/30/2011     12/31/2010  
  Advances to employees for job/travel disbursements $  535,764   $  764,725  
  Amount due by a non-related enterprise   156,532     215,685  
  Other non-related receivables   5,697,209     512,440  
    $  6,389,505   $  1,492,850  

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.

Specifically, the company uses every available employee to arrange purchases with desirable chestnut or other raw material growers. However, because many of these growers are in rural farming areas of China where traditional banking and credit arrangements are difficult to implement, the Company must utilize cash purchases and also must contract for its future needs by placing a good faith deposit in cash with the growers. However none of these advances to employees for delivery to the growers on behalf of the Company are “personal loans” to the employees. Advances to employees for purchase of materials in other receivables are adjusted to advances to suppliers as of September 30, 2011.

Related party receivable consisted of the following as of September 30, 2011 and December 31, 2010:

18



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

      9/30/2011     12/31/2010  
  Chen Si $  133,024   $  123,467  
  Liu, Lihua   78,266     -  
    $  211,289   $  123,467  

Related party receivable represented advances issued by management for job or travel disbursement in the normal course of business. The receivable had no impact on earnings. As with other employees, officers sign notes when cash is issued to them as job or travel disbursement.

   
6.

INVENTORIES

   

Inventories consisted of the following as of September 30, 2011 and December 31, 2010:


      9/30/2011     12/31/2010  
  Raw materials $  11,020,616   $   18,128,883  
  Finished goods   23,809,242     11,678,315  
    $  34,829,858    $ 29,807,198  

7.

PROPERTY, PLANT AND EQUIPMENT

   

Property, plant, and equipment consisted of the following as of September 30, 2011 and December 31, 2010:


      9/30/2011     12/31/2010  
  At Cost:            
       Buildings $  51,147,622   $  48,612,643  
       Landscaping, plant and tree   2,952,720     2,852,998  
       Machinery and equipment   10,374,769     9,544,910  
       Office equipment   614,069     501,977  
       Motor vehicles   464,766     420,020  
    $  65,553,945   $  61,932,548  
  Less: Accumulated depreciation            
       Buildings   (3,672,300 )   (2,729,161 )
       Landscaping, plant and tree   (123,030 )   (23,775 )
       Machinery and equipment   (4,749,410 )   (3,998,121 )
       Office equipment   (376,893 )   (312,872 )
       Motor vehicles   (243,433 )   (225,832 )
      (9,165,067 )   (7,289,761 )
               
  Construction in Progress   18,430,481     17,452,220  
    $  74,819,359   $  72,095,007  

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

Landscaping, plants, and trees accounts for the orchards that the Company has developed for agricultural operations. These orchards as well as the young trees which were purchased as nursery stock are capitalized into fixed assets. The depreciation is then calculated on a 30-year straight-line method when production in commercial quantities begins. The orchards have begun production in small quantities and the Company has accounted for depreciation commencing July 1, 2010. Depreciation expense for the period ended September 30, 2011 and year ended December 31, 2010 were $ 1,475,523 and $1,360,134, respectively.

19



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

8.

LAND USE RIGHTS

   

Land use rights consisted of the following as of September 30, 2011 and December 31, 2010:


      9/30/2011     12/31/2010  
  Land use rights, at cost $  5,704,322   $  5,509,925  
  Less: Accumulated amortization   (774,485 )   (632,487 )
    $  4,929,838   $  4,877,438  

All lands are owned by the government in China. Land use rights represent the Company’s purchase of usage rights for a parcel of land for a specified duration of time, typically 50 years. The land use rights are then amortized over the period of usage. Amortization expense for the years ended September 30, 2011 and December 31, 2010 were $ 141,997 and $144,611, respectively.

   
9.

SHORT-TERM BANK LOANS

   

Short-term bank loans consisted of the following as of September 30, 2011 and December 31, 2010:


      Remark     9/30/2011     12/31/2010  
  Loans from Junan County Construction Bank,                  
         • Interest rate at 5.610% per annum due 1/6/2011                         $  -   $  128,558  
         • Interest rate at 5.841% per annum due 1/14/2011         -     483,983  
         • Interest rate at 5.610% per annum due 1/28/2011         -     3,223  
         • Interest rate at 5.841% per annum due 3/4/2011         -     393,236  
         • Interest rate at 5.841% per annum due 9/9/2011         -     1,209,958  
                     
  Loan from Junan County Agriculture Bank,                  
         • Interest rate at 6.903% per annum due 3/30/2011         -     95,284  
         • Interest rate at 7.434% per annum due 8/23/2011   A           1,512,447  
                     
  Loan from Junan County Industrial and Commercial Banks,                  
         • Interest rate at 5.100% per annum due 1/18/2011         -     756,224  
         • Interest rate at 5.100% per annum due 1/20/2011         -     756,224  
         • Interest rate at 5.100% per annum due 1/26/2011         -     1,134,336  
         • Interest rate at 5.100% per annum due 2/8/2011         -     635,228  
         • Interest rate at 5.100% per annum due 2/22/2011         -     1,240,207  
         • Interest rate at 4.860% per annum due 3/15/2011         -     1,134,336  
         • Interest rate at 7.44% per annum due 10/17/2011   B     626,125     -  
                     
  Loan from Linyi Commercial Bank,                  

20



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

         • Interest rate at 11.510% per annum due 1/21/2011         -     680,601  
         • Interest rate at 11.676% per annum due 12/15/2011   C     704,391     680,601  
         • Interest rate at 12.201% per annum due 1/10/2012   C     704,391     -  
                     
  Loan from Minsheng Bank, Luotian Branch                  
         • Interest rate at 8.203% per annum due 4/15/2012         2,347,969     -  
                     
  Loan from China Agricultural Bank, Luotian Branch                  
         • Interest rate at 6.372% per annum due 9/12/2011         939,188     1,134,336  
                     
  Bank of Beijing,                  
         • Interest rate at 6.672% per annum due 10/28/2011         313,063     302,489  
                     
  East West Bank (Formerly United Commercial Bank), China                  
  Branch,                  
         • Interest rate at 5.494% per annum due 11/14/2011   D     580,295     897,052  
                     
  HSBC Miyun Branch,                  
         • Interest rate at 5.840% per annum due 6/09/2011         -     302,489  
         • Interest rate at 6.372% per annum due 6/29/2011         -     983,091  
         • Interest rate at 6.804% per annum due 4/8/2011         -     302,489  
                     
  Shenzhen Development Bank, Zhenhua Branch                  
         • Interest rate at 5.310% per annum due 9/14/2011         -     756,224  
         • Interest rate at 6.710% per annum due 3/15/2011         782,656     -  
                     
  China Development Bank,                  
         • Interest rate at 5.841% per annum due 6/27/2011         -     3,024,895  
                     
  Luotian Agricultural Development Bank,                  
         • Interest rate at 0.670% per month due 12/11/2010         -     113,433  
                     
  Luotian Sanliqiao Credit Union,                  
         • Interest rate at 6.300% per annum due 11/5/2011         782,656     756,224  
                     
  Beijing Rural Commercial Bank, Shilibao Branch,                  
         • Interest rate at 7.434% per annum due 8/10/2011         2,661,032     2,571,161  
                     
  China Agricultural Bank, Shandong Branch                  
         • Interest rate at 7.2280% per annum due 12/27/2011         1,565,313     1,512,447  

21



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

  Shandong Junan Rural Credit Union            
         Interest rate at 9.1155% per annum due 2/07/2011   -     1,209,958  
               
  Beijing International Trust Co., Ltd., (“BITIC”)            
         • Interest rate at 6.600% per annum due 12/14/2011   469,594     453,734  
               
  Shenzhen Development Bank,            
         • Interest rate at 6.435% per annum due 12/7/2011   2,347,969     -  
                                                                                                                                                                          $  14,824,640   $  25,164,469  

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 12,726 square meters land use right and an 8,162 square meters building was used as collateral for this loan.
B: Accounts Receivable in the amount of $1,650,000 was used as collateral for this loan
C: Machinery of $857,737 was used as collateral for these two loans.
D: A parcel of 19,507 square meters land use right, owned by Sishui Xinlu, was used as collateral for this loan.

10.

NOTES PAYABLE

   

Notes payable consisted of the following as of September 30, 2011 and December 31, 2010:


      9/30/2011     12/31/2010  
  Junan County Construction Bank,            
         • due at 1/26/2011 $  -   $  378,112  
         • due at 1/30/2011   -     846,971  
               
  Qingdao Evergrowing Bank,            
         • due at 6/13/2011   -     3,024,895  
               
  Shenzhen Development Bank            
         • due at 10/8/2011   782,656     -  
               
    $  782,656   $  4,249,977  

11.

TAXES PAYABLES

   

Taxes payable consisted of the following as of September 30, 2011 and December 31, 2010:

22



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

      9/30/2011     12/31/2010  
  Value added tax payable $  1,128,345   $  377,562  
  Corporate income tax payable   1,917,279     2,808,466  
  Employee payroll tax withholding   5,353     5,096  
  Property tax payable   50,080     38,819  
  Stamp duty tax payable   1,421     4,679  
  Sales tax payable   199     76  
  Land use tax payable   41,832     24,943  
  City maintenance and construction tax payable   2,017     -  
  Import tariffs   -     6,861  
    $  3,146,526   $  3,266,502  

12.

ACCRUED EXPENSES AND OTHER PAYABLES

   

Accrued expenses and other payables consisted of the following as of September 30, 2011 and December 31, 2010:


      9/30/2011     12/31/2010  
  Accrued salaries and wages $  254,557   $  -  
  Accrued utility expenses   57,704     24,825  
  Accrued interest expenses   51,104     38,353  
  Accrued transportation expenses   250,009     472,836  
  Other accruals   183,140     110,683  
  Business and other taxes   242,209     479,850  
  Disbursement payable   3,532     177,543  
  Accrued staff welfare   122,054     31,857  
    $  1,164,310   $  1,335,947  

13.

LONG-TERM DEBT

   

Current portions of long-term debt consisted of the following as of September 30, 2011 and December 31, 2010:


      9/30/2011     12/31/2010  
  Loans from Luotian Agricultural Development Bank            
   • Interest rate at 2.100% per annum due 12/11/2011   56,743     26,468  
               
  Loans from East West Bank (Formerly United Commercial Bank), China Branch
   • Interest rate at 5.494% per annum due 11/14/2011   -     192,467  
               
    $ 56,743   $  218,935  

Non-current portions of long-term debt consisted of the following as of September 30, 2011 and December 31, 2010:

      9/30/2011     12/31/2010  
  Loans from Deutsche Investitions-und Entwicklungsgesellschaft mbH (“DEG”)
   • Interest rate at 5.510% per annum due 3/15/2016   15,509,477     5,030,930  
    $ 15,509,477   $  5,030,930  

The Company’s loan with DEG will be repaid in semi-annual installments beginning September 15, 2012. The loan was collateralized with the following terms:

23



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

(a.)

Create and register a first ranking mortgage in the amount of about USD 12,000,000 on its land and building in favor of DEG.

(b.)

Undertake to provide a share pledge of Mr. Si Chen shares in the sponsor in the amount of about USD 12,000,000 and being the majority shareholder in the sponsor in form and substance satisfactory to DEG

(c.)

The total amount of the first ranking mortgage as indicated in the Loan Agreement (Article 12(1)(a)) and the value of the pledged shares of Mr. Si Chen (Loan Agreement (Article 12(1)(a))) should be at least USD 24,000,000.

  (d.)

Undertake to provide a guarantee from the Shareholder in form and substance satisfactory to DEG.


14.

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 until through December 31, 2007. In connection with the financing, the Company also issued 1,037,858 and 489,330 warrants to the PIPE investors and placement agent, respectively. During 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; however, because the holders did not pay in cash for the warrants, 110,752 of those shares were cancelled as consideration in lieu of the warrant holders paying in cash. Ultimately, 249,455 of new shares were issued to those who exercised their warrant. The Company also made an adjustment to its 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 September 30, 2011 was 34,471,801.

   

During the year 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.

   

During the year 2010, the Company issued 2,000 shares to a service provider on February 10, 2010 and 81,155 warrants to various service providers on January 5, 2010. The Company issued to investors 3,440,800 shares at an agreed price of $2.80 per share for a PIPE financing on September 10, 2010. This financing brought $8,955,730 net proceeds to the Company. The Company issued 5,000 shares to its employee on September 23, 2010. 731,707 shares of restricted stock were issued to the owner of Shandong Greenpia, Mr. Ji Zhenwei on September 24, 2010 as part of acquisition cost. The total number of shares issued and outstanding is 34,444,709 as of September 30, 2011.

   

During the year 2010, the Company transferred 5,161,176 from retained earnings to additional paid up capital and 2,445,262 from retained earnings to statutory reserve. These transfers are to be used for future company development, recovery of losses and increase of capital, as approved, to expand production or operations.

   

For the period ended September 30, 2011, the Company transferred 737,690 from retained earnings to statutory reserve. These transfers are to be used for future company development, recovery of losses and increase of capital, as approved, to expand production or operations.

American Lorain Corporation Capitalization Reconciliation Table

  Par value authorized Issuance date Shares outstanding
Common stock at 1/1/2009 200,000,000   25,172,640
New shares issued to employees and vendors during 2009 Various dates 56,393
New shares issued to PIPE investors   10/28/2009 5,011,169
New shares issued to service provider during 2010 2/10/2010 2,000
New shares issued to PIPE investors   9/10/2010 3,440,800
New shares issued to employee   9/23/2010 5,000
New shares issued as acquisition consideration   9/24/2010 731,707
New shares issued to service provider during 2011   5/5/2011 25,000
New shares issued to employees per stock incentive plan   7/20/2011 27,092
Common stock at 9/30/2011     34,471,801

24



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)
 

Warrants and options Number of warrants or options Issuance date Expiration date
Warrants issued to investors in 2007 PIPE 1,037,858 5/3/2007 5/2/2010
Warrants issued to placement agent in 2007 PIPE 489,330 5/3/2007 5/2/2010
Employee stock options 1,334,573 7/28/2009 7/27/2014
Warrants issued to investors in 2009 PIPE - Series A 1,753,909 10/28/2009 4/28/2015
Warrants issued to investors in 2009 PIPE - Series B 501,115 10/28/2009 10/28/2012
Issued to service provider A during 2010 50,722 1/5/2010 1/2/2014
Issued to service provider B during 2010 20,289 1/5/2010 1/2/2014
Issued to service provider C during 2010 10,144 1/5/2010 1/2/2014
Total warrants and options 5,197,940    

15.

NON-CONTROLLING INTERESTS

   

The non-controlling interest represents the 19.8% equity of Shandong Lorain held by the Shandong Economic Development Investment Corporation, which is a state-owned interest.

   
16.

SALES BY PRODUCT TYPE

   

Sales by categories of product consisted of the following during the nine months ended September 30, 2011 and 2010:


  Category   9/30/2011     9/30/2010  
  Chestnut $  57,238,463   $  49,062,130  
  Convenience food   45,100,128     35,911,359  
  Frozen food   19,479,905     16,878,265  
  Total $  121,818,496   $  101,851,754  

Revenue by geography consisted of the following during the nine months ended September 30, 2011 and 2010:

  Country   9/30/2011     9/30/2010  
  Australia $  362,673   $  174,840  
  Belgium   1,635,002     1,618,314  
  Canada   110,298     -  
  China   93,497,740     80,882,742  
  Denmark   22,853     -  
  France   1,138,793     418,819  
  Germany   1,330,082     779,334  
  Hong Kong   385,454     73,192  
  Indonesia   20,950     134,577  
  Israel   238,921     13,219  
  Japan   12,295,910     7,134,484  
  Malaysia   1,518,689     1,345,771  
  Netherlands   584,981     118,318  
  Philippines   248,615     175,691  
  Poland   145,061     17,052  
  Singapore   557,151     464,069  
  South Korea   2,933,657     5,384,258  
  Spain   712,327     375,779  
  Taiwan   1,057,119     322,089  
  United Kingdom   2,583,897     1,734,090  
  United States   207,144     685,116  
  Others   33,656     -  
  Total $  121,818,496   $  101,851,754  

25



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

17.

INCOME TAXES

   

All of the Company’s operations are in the PRC, and in accordance with the relevant tax laws and regulations of PRC, the corporate income tax rate is 25%.

   

The following tables provide the reconciliation of the differences between the statutory and effective tax expenses as of September 30, 2011 and 2010.


      September 30,  
      2011     2010  
  Income attributed to PRC $  18,674,583   $  14,237,959  
  Loss attributed to US*   (683,860 )   (949,113 )
  Income before tax   17,990,723     13,288,846  
               
  PRC Statutory Tax at 25% Rate   4,061,371     3,559,490  
  Effect of tax exemption granted   -     (552,531 )
  Income tax $  4,061,371   $  3,005,959  

  Per Share Effect of Tax Exemption   September 30,  
      2011     2010  
  Effect of tax exemption granted $  -   $  553,531  
  Weighted-Average Shares Outstanding Basic   34,440,483     30,525,487  
  Per share effect $  - $     0.02  

The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate was as follows as of September 30, 2011 and 2010:

      September 30,  
      2011     2010  
  U.S. federal statutory income tax rate $  35%   $  35%  
  Lower rates in PRC, net   -10%     -10%  
  Tax holiday for foreign investments   2.43%     2.38%  
  The Company’s effective tax rate $  22.57%   $  22.62%  

26



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

Effective January 1, 2008, the 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 25% tax rate, tax holidays were 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 planned 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 2011 and 2010 in the following table.

  Income Tax Rate   2011     2010  
  International Lorain   0%     0%  
  Junan Hongran   25%     25%  
  Luotian Lorain   25%     15%  
  Beijing Lorain   15%     15%  
  Shandong Lorain   25%     25%  
  Shandong Greenpia   25%     25%  
  Dongguan Lorain   25%     25%  

18.

EARNINGS PER SHARE

   

Components of basic and diluted earnings per share were as follows for the three and nine months periods ended September 30, 2011 and 2010:


      Three months ended     Nine months ended  
      September 30,     September 30,  
      2011     2010     2011     2010  
  Basic Earnings Per Share Numerator                        
  Net Income $  7,071,288   $  5,084,475   $  12,760,027   $  9,624,619  
                           
  Income Available to Common Stockholders 7,071,288 5,084,475 12,760,027 9,624,619
                           
  Diluted Earnings Per Share Numerator                        
  Income Available to Common Stockholders 7,071,288 5,084,475 12,760,027 9,624,619
                           
  Income Available to Common                        
  Stockholders on Converted Basis   7,071,288     5,084,475     12,760,027     9,624,619  
                           
  Original Shares:                        
  Additions from Actual Events                        
  -Issuance of Common Stock   34,466,144     31,083,710     34,440,483     30,525,487  
  Basic Weighted Average Shares Outstanding 34,466,144 31,083,710 34,440,483 30,525,487

27



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

  Dilutive Shares:                        
  Additions from Potential Events                        
  Exercise of Employee & Director Stock Options 139,524 596,161 314,068 696,271
  Diluted Weighted Average Shares Outstanding: 34,605,668 31,679,871 34,754,552 31,221,758
                           
  Earnings Per Share                        
  - Basic   0.21     0.16     0.37     0.32  
  - Diluted $   0.20   $ 0.16   $           0.37   $  0.31  
                                                                                                                                                                                                           
  Weighted Average Shares Outstanding                        
  - Basic   34,466,144     31,083,710     34,440,483     30,525,487  
  - Diluted   34,605,668     31,679,871     34,754,552     31,221,758  

19.

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 September 30, 2011 and December 31, 2010, the Company recorded a total of $452,179 and $890,209 stock option and its related general and administrative expenses.

   

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

28



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

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

No tax benefit has yet to be accrued or realized. For the period ended September 30, 2011, the Company has yet to repatriate its earnings, accordingly it has not recognized any deferred tax assets or liability in regards to benefits derived from the issuance of stock options.

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

  Weighted-average fair value of grants: $  1.2392  
  Risk-free interest rate:   0.96%  
  Expected volatility:   4.59%  
  Expected life in months:   36.00  

20.

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 September 30, 2011 are shown in the following table:


  From   To     Lease payment  
  10/1/2011   12/31/2011     22,541  
  1/1/2012   12/31/2012     90,162  
  1/1/2013   12/31/2013     93,693  
  1/1/2014   12/31/2014     99,178  
  1/1/2015   12/31/2015     99,178  
  1/1/2016   12/31/2016     99,178  
  1/1/2017   12/31/2017     99,178  
  1/1/2018   8/9/2018     60,581  
          $  663,690  

The outstanding lease commitment as of September 30, 2011 was $663,690.

The minimum future lease payments for this property at December 31, 2010 are shown in the following table:

  From   To     Lease payment  
  1/1/2011   12/31/2011     84,245  
  1/1/2012   12/31/2012     84,245  
  1/1/2013   12/31/2013     87,521  
  1/1/2014   12/31/2014     92,670  
  1/1/2015   12/31/2015     92,670  
  1/1/2016   12/31/2016     92,670  
  1/1/2017   12/31/2017     92,670  
  1/1/2018   8/9/2018     56,631  
          $  683,332  

The outstanding lease commitment as of December 31, 2010 was $683,332.

29



AMERICAN LORAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(Stated in US Dollars)

21.

RISKS


  A.

Credit risk

     
 

Since the Company’s inception, the age of account receivables have been less than one year indicating that the Company is subject to minimal risk borne from credit extended to customers.

     
  B.

Interest risk

     
 

The company subject to the interest rate risk when their short term loans become due and require refinancing.

     
  C.

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 changes in the political, economic, and legal environments in the PRC.

     
 

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.

     
  D.

Environmental risks

     
 

The Company has procured environmental licenses required by the PRC government. The Company has both a water treatment facility for water used in its production process and secure transportation to remove waste off site. In the event of an accident, the Company has purchased insurance to cover potential damage to employees, equipment, and local environment.

     
  E.

Inflation Risk

     
 

Management monitors changes in prices levels. Historically inflation has not materially impacted the company’s financial statements; however, significant increases in the price of raw materials and labor that cannot be passed on the Company’s customers could adversely impact the Company’s results of operations.


22.

OTHER INCOME

   

On March 13, 2011, the Company entered into an agreement with Jiangsu Heng An Industrial Investment Group Co., Ltd. to sell the Company’s short-term investment in the amount of $ 7,764,577 (RMB 49,604,000) of a parcel of land located in Junan Town, Shandong Province, to construct residential buildings. The land was sold to Jiangsu Heng An at a total sale price of RMB 69,604,000 and a guaranteed gross profit of RMB 20,000,000 without consideration of profit / loss of the residential building project. The gain on the sale of the short-term investment excluding taxes payable is recorded as other income on the statements of income and comprehensive income. Title of the land will transfer from the Company to Jiangsu Heng An upon receipt of an initial deposit of RMB 15,000,000. As of September 30, 2011, a total of RMB 33,000,000 has been paid and RMB 36,000,000 is classified as other receivable. According to the contract, the Company will be entitled to receive RMB 9,000,000 within 5 days after the title transfer and construction approval is complete, and RMB 27,000,000 within 5 days after the residential building main frame is completed.

30


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, 2010 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 third quarter of 2011. We derive most of our revenues from sales in China, Japan and South Korea. Our primary strategy for 2011 is to expand our brand equity in the Chinese market for our convenience foods products while maintaining the steady growth and brand recognition for our chestnut products and frozen products. In addition, we are working to expand our marketing efforts in Asia, North America, Europe and the Middle East. We currently have limited sales and marketing activity in the United States, although our long-term plan is to significantly expand our activities there.

Sales in the nine months ended September 30, 2011 continue to exhibit steady growth. Sales continue to be heavily concentrated in the Asian regions, with mainland China, Japan and South Korea accounting for 89.3% of total sales during the nine months ended September 30, 2011, as compared to 91.7% over the same period of last year. In the fourth quarter, American Lorain expects to continue seeing higher demand for its chestnut products as we enter traditionally strong quarter, as well as its fast growing convenience food products such as rice boxes, bean products, and pickle vegetables.

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 nine months of 2011, compared with 16.6% in the same period of 2010. 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 as part of a broader marketing strategy and in response to a highly competitive environment.

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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 nine months ended September 30, 2011, the cost of our raw materials increased from $75.5 million to $86.9 million, as compared to the nine months ended September 30, 2010, for an increase of approximately 15.2% . During the third quarter of 2011, the cost of our raw materials increased from $34.8 million to $39.9 million, as compared to the third quarter of 2010, for an increase of approximately 14.7% due to a combined effect of increased sales and general inflation. China currently faces high domestic inflation pressures, especially in agricultural products and consumer foods. The prolonged continuation or worsening of such pressure may negatively our sales or profitability. 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.

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.

We have also been working to reduce the seasonality in our business primarily by expanding sales of our convenience food business line. The percentage revenue contribution from convenience food increased from 35.3% in the first nine months of 2010 to 37.0% in the first nine months of 2011, while revenue contribution from chestnuts declined from 48.2% to 47.0% over the same period of time.

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 nine months of 2011, we paid for approximately 4.6% of our raw materials on credit. In the third quarter of 2011, we paid for approximately 12.9% of our raw materials on credit. We fund the majority of our working capital requirements out of cash flow generated from operations as well as bank loans. 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.

We also fund approximately 17.7% of our working capital requirements from the proceeds of short-term loans from Chinese banks, as compared to 79.8% over the same period last year, as we obtained, and have fully drawn from, a $15 million long term loan from Deutsche Investitions- und Entwicklungsgesellshaft (“DEG”) and thus reduced our reliance on short term bank loans. However, 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 balance from short-term bank loans as of September 30, 2011 was approximately $14.8 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. In addition, we completed two private placement financings in September 2010 and October 2009 with net proceeds of $9.0 million and $10.9 million, respectively, the proceeds of which were primarily used for working capital. We can provide no assurances that we will be able to enter into any future financing or refinancing agreements on terms favorable to us, especially considering the current instability of the capital markets.

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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.

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, as more fully described in the Company’s Annual Report on Form 10-K.

The crisis of the financial and credit markets worldwide in the second half of 2008 has led to a severe economic recession worldwide. Furthermore, the on-going European debt crisis is still weighing on the global economic conditions as well as the financial market. The continuation or worsening of unfavorable economic conditions, including the on-going global economy and capital markets disruptions, could have adverse impacts on our business, operating results or financial conditions 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 2010, 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.

Results of Operations

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

The following table summarizes the results of our operations during the three month period ended September 30, 2011 and September 30, 2010, respectively, and provides information regarding the dollar and percentage increase or (decrease) of the three month period ended September 30, 2011 compared to the three month period ended September 30, 2010.

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

    Three months ended              
    September 30,     Dollar($)     Percentage  
                      (%)  
    2011     2010     Increase     Increase  
    (In US     (In US     (Decrease)     (Decrease)  
    Dollar)     Dollar)              
Net revenues   55,642,041     48,073,224     7,568,817     15.7%  
Cost of revenues   (43,291,417 )   (37,293,496 )   (5,997,921 )   16.1%  
Gross profit   12,350,624     10,779,728     1,570,896     14.6%  
Operating expenses                        
Selling and marketing expenses   (2,538,469 )   (2,072,152 )   (466,317 )   22.5%  
General and administrative expenses (1,611,242 ) (1,643,967 ) 32,725 -2.0%
                         
Operating income   8,200,913     7,063,609     1,137,304     16.1%  
                         
Government subsidy income   47,657     321,537     (273,880 )   -85.2%  
Interest and other income   2,135,832     628,008     1,507,824     240.1%  
Other expenses   (54,269 )   (16,269 )   (38,000 )   233.6%  
Interest expense   (550,657 )   (1,127,993 )   577,336     -51.2%  
Earnings before tax   9,779,476     6,868,892     2,910,584     42.4%  
Income tax   (1,887,950 )   (1,476,363 )   (411,587 )   27.9%  
Income before minority interests   7,891,526     5,392,529     2,498,997     46.3%  
Net income attributable to:                        
Common stock holders   7,071,288     5,084,475     1,986,813     39.1%  
Minority interests   820,238     308,054     512,184     166.3%  

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Revenue

Net Revenues. Our net revenue for the three months ended September 30, 2011 amounted to $55.6 million, which represents an increase of approximately $7.6 million, or 15.7%, from the three-month period ended on September 30, 2010, in which our net revenue was $48.1 million. This increase was attributable to the increased revenues generated from sales of each of our product segments, as reflected in the following table:

    Three months ended              
(in thousands of U.S.   9/30/2011     9/30/2010     Increase     Increase  
dollars)                        
Category   ($)     ($)     ($)     (%)  
Chestnut   24,468,233     21,233,329     3,234,904     15.2%  
Convenience food   22,288,710     18,552,192     3,736,518     20.1%  
Frozen food   8,885,098     8,287,703     597,395     7.2%  
Total   55,642,041     48,073,224     7,568,817     15.7%  

Cost of Revenues. During the three months ended September 30, 2011, we experienced an increase in cost of revenue, which consists of raw materials, direct labor and manufacturing overhead expenses, of $6.0 million, in comparison to the three months ended September 30, 2010, from approximately $37.3 million to $43.3 million, reflecting an increase of approximately 16.1% . Approximately 85.5%, or $5.1 million, of this increase was attributable to an increase in raw material costs, which increased from $34.8 million during the three months ended September 30, 2010 to $39.9 million, or approximately 14.7%, during the three months ended September 30, 2011 due to higher production volume as our business expands, as well as higher prices for chestnut and other agricultural products caused by general inflation.

The factors that contributed to the remaining 14.5% 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 $1.6 million, or 14.6%, to $12.4 million for the three months ended September 30, 2011 from $10.8 million for the same period in 2010 as a result of higher revenues, offset by higher costs of revenues, for the reasons indicated immediately above. Our gross margins decreased slightly from 22.4% to 22.2% for the period ended September 30, 2011, as compared to the period ended September 30, 2010 due to inflation pressure in the Chinese domestic market. Gross profit margins by product segment for the three months ended September 30, 2011 were: 23-26% for chestnuts, 20-23% for convenience foods and 16-18% for frozen foods.

Operating Expenses

Selling and Marketing Expenses. Our selling and marketing expenses increased $466,317, or 22.5%, to $2.5 million in the third quarter of 2011 from $2.1 million in the third quarter of 2010. 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. The increases listed in the table below were partially offset by decreases in dollar amount of other selling and marketing expenses, including sales commission and sea transportation.

(in U.S. dollars) Increase in Costs in the
  Three Months Ended September 30, 2011 over
  the Three Months Ended September 30, 2010
   
Wages and Benefit $ 193,578  
Port Fees 50,313
Entertainment Expense   56,929  
Exhibition Expense 39,285

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Selling and marketing expenses increased as we enhanced our efforts to expand our distribution channels in China as well as internationally, and to build the brand recognition for our chestnut and convenience food products.

General and Administrative Expenses. We experienced a decrease in general and administrative expense of $32,725 from $1,643,967 to $1,611,242 for the three months ended September 30, 2011, compared to the same period in 2010. The general and administrative expenses are higher for the three months ended September 30, 2010 mostly due to expenses related to the Company’s $9.6 million private placement such as filing expense and legal expense. These higher expenses are partially offset by the increase of other expenses during the three months ended September 30, 2011 compared to the same period of last year, as detailed in the following table:

(In U.S Dollars)   Increase in Costs in the  
    Three Months Ended September 30, 2011  
    over the Three Months Ended September 30, 2010  
       
Wage and Benefit  $ 223,250  
Land Use Expense   95,978  
Entertainment Expense   50,754  
Fuel Expense   23,304  

Interest Expenses. We experienced a decrease in interest expenses of approximately $0.6 million from approximately $1.1 million to $0.6 million for the three months ended September 30, 2011, compared to the same period in 2010. The decrease was mainly due to the decrease in outstanding balance of our short term bank loans, which was $14.8 million at the end of September 30, 2011, compared to $46.8 million at the end of September 30, 2010.

Income Before Taxation and Minority Interest

Income before taxation and minority interest increased $2.9 million, or 42.4%, to $9.8 million for the three months ended September 30, 2011 from $6.9 million for the same period of 2010. The increase was largely attributable to $2.1 million of other income we recognized in the third quarter when we sold the land previously carried on our balance sheet as a short term investment. Without the effect of the land sale, our earnings before tax and minority interest increased 11.9% to $7.7 million for the three months ended September 30, 2011 from $6.9 million in the same period of last year. Please refer to note 22 to the financial statements for details.

Income Taxes

Income taxes increased $411,587, or 27.9%, to $1.9 million in the third quarter of 2011, as compared to $1.5 million in the third quarter of 2010. This increase was attributable to the higher earnings before tax and a higher income tax rate in 2011 as compared to 2010.

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 2011 and 2010 are depicted in the following table:

  2011 2010
Junan Hongrun 25% 25%
Luotian Lorain 25% 15%
Beijing Lorain 15% 15%
Shandong Lorain 25% 25%
Dongguan Lorain 25% 25%
Shandong Greenpia 25% 25%

Net Income

Net income increased $2.0 million, or 39.1%, to $7.1 million for the three months ended September 30, 2011 from $5.1 million for the same period of 2010. The increase was largely attributable to the $2.1 million other income we recognized in the third quarter when we sold the land previously carried on our balance sheet as short term investment. Without the effect of the land sale, our net income increased 6.1% to $5.4 million for the three months ended September 30, 2011 from $5.1 million in the same period of last year. Please refer to note 22 to the financial statements for details.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

The following table summarizes the results of our operations during the nine month period ended September 30, 2011 and September 30, 2010, respectively and provides information regarding the dollar and percentage increase or (decrease) of the nine month period ended September 30, 2011 compared to the nine month period ended September 30, 2010.

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    Nine months ended                
    September 30,     Dollar($)     Percentage  
                      (%)  
    2011     2010     Increase     Increase  
    (In US Dollar)     (In US Dollar)     (Decrease)     (Decrease)  
Net revenues   121,818,496     101,851,754     19,966,742     19.6%  
Cost of revenues   (95,036,378 )   (78,629,267 )   (16,407,111 )   20.9%  
Gross profit   26,782,118     23,222,487     3,559,631     15.3%  
Operating expenses                        
Selling and marketing expenses   (4,989,922 )   (4,639,500 )   (350,422 )   7.6%  
General and administrative expenses (4,680,555 ) (3,592,629 ) (1,087,926 ) 30.3%
                         
Operating income   17,111,641     14,990,358     2,121,283     14.2%  
                         
Government subsidy income   643,009     698,961     (55,952 )   -8.0%  
Interest and other income   2,285,288     759,579     1,525,709     200.9%  
Other expenses   (235,324 )   (88,506 )   (146,818 )   165.9%  
Interest expense   (1,813,891 )   (3,071,546 )   1,257,655     -40.9%  
                         
Earnings before tax   17,990,723     13,288,846     4,701,877     35.4%  
                         
Income tax   (4,061,371 )   (3,005,959 )   (1,055,412 )   35.1%  
                         
Income before minority interests   13,929,352     10,282,887     3,646,465     35.5%  
                         
Net income attributable to:                        
                         
Common stock holders   12,760,027     9,624,619     3,135,408     32.6%  
Minority interests   1,169,325     658,268     511,057     77.6%  

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Revenue

Net Revenues. Our net revenue for the nine months ended September 30, 2011 amounted to $121.8 million, which is approximately $20.0 million, or 19.6%, more than that of the same period ended on September 30, 2010 where we had revenue of $101.9 million. This increase was attributable to the increased revenues generated from sales of each of our product segments, as reflected in the following table:

    Nine months ended              
(in thousands of U.S.   9/30/2011     9/30/2010              
dollars)                        
Category   ($)     ($)     ($)     (%)  
Chestnut   57,238,463     49,062,130     8,176,333     16.7%  
Convenience food   45,100,128     35,911,359     9,188,769     25.6%  
Frozen food   19,479,905     16,878,265     2,601,640     15.4%  
Total   121,818,496     101,851,754     19,966,742     19.6%  

Cost of Revenues. Our cost of revenues, which consists of raw materials, direct labor and manufacturing overhead expenses, was $95.0 million for the nine month period ended September 30, 2011, an increase of $16.4 million or 20.9%, as compared to $78.6 million for the nine month period ended September 30, 2010. Approximately 69.7%, or $11.4 million, of this increase was attributable to an increase in raw material costs, which increased from $75.5 million during the nine months ended September 30, 2010 to $86.9 million, or approximately 15.2%, during the nine months ended September 30, 2011.

The factors that contributed to the remaining 30.3% 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 $3.6 million, or 15.3%, to $26.8 million for the nine months ended September 30, 2011 from $23.2 million for the same period in 2010. This increase was attributable to increased sales revenue, offset by higher cost as described above. Our gross margins decreased from 22.8% to 22.0% due to inflation pressure in the Chinese domestic market. Gross profit margins by product segment for the six months ended September 30, 2011 were: 23-26% for chestnuts, 20-23% for convenience foods and 16-18% for frozen foods.

Operating Expenses

Selling and Marketing Expenses. Selling and marketing expenses increased $350,422, or 7.6%, to $5.0 million for the nine months ended September 30, 2011 from $4.6 million for the same period in 2010. Selling and marketing expenses increased as we enhanced our efforts to expand our distribution channels in China as well as internationally, and to build the brand recognition for our chestnut and convenience food products.

General and Administrative Expenses. General and administrative expenses increased approximately $1.1 million, or 30.3% to $4.7 million for the nine months ended September 30, 2011 from $3.6 million for the same period of 2010. The increase of general and administrative expenses was primarily attributable to increased salary and benefits costs for our employees relative to our expanded business, the increased compensation for managerial personnel and expenses related to the Company's employee stock option plan.

Interest Expenses. We experienced a decrease in interest expenses of approximately $1.3 million from approximately $3.1 million to $1.8 million for the nine months ended September 30, 2011, compared to the same period in 2010. The decrease was mainly due to the decrease in outstanding balance of our bank loans, which was $14.8 million at the end of September 30, 2011, compared to $46.8 million at the end of September 30, 2010.

Income Before Taxation and Minority Interest

Income before taxation and minority interest increased $4.7 million or 35.4% to $18.0 million for the nine months ended September 30, 2011 from $13.3 million for the same period of 2010. The increase was largely attributable to $2.1 million other income we recognized in the third quarter when we sold the land previously carried on our balance sheet as short term investment. Without the effect of the land sale, our earnings before tax and minority interest increased 19.6% to $15.9 million for the nine months ended September 30, 2011 from $13.3 million in the same period of last year.

Income Taxes

Income taxes increased approximately $1.1 million, or 35.1% to $4.1 million for the nine months ended September 30, 2011 from $3.0 million for the same period of 2010. The increase of tax paid was primarily a result of the increase of income as well as higher tax rate in the first nine months ended September 30, 2011, as compared to the same period in 2010.

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Net Income

Net income increased $3.1 million, or 32.6% to $12.8 million for the nine months ended September 30, 2011 from $9.6 million for the same period of 2010. The increase was largely attributable to the $2.1 million other income we recognized in the third quarter when we sold the land previously carried on our balance sheet as short term investment. Without the effect of the land sale, our net income increased 15.1% to $11.1 million for the nine months ended September 30, 2011 from $9.6 million in the same period of last year.

Liquidity and Capital Resources

As of September 30, 2011, we had cash and cash equivalents (excluding restricted cash) of $11.4 million. Our cash and cash equivalents decreased by approximately $1.3 million from December 31, 2010, primarily due to increase in inventories, receivables and restricted cash. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

(in thousands of U.S. dollars)

    Nine Months Ended  
    September 30,  
                                                                                                                                                                      2011     2010  
Net cash provided by (used in) operating activities   (519 )   (9,431 )
Net cash provided by (used in) investing activities   (2,054 )   (13,084 )
Net cash provided by (used in) financing activities   (3,491 )   20,682  
Net cash flow (outflow)   (6,063 )   (1,833 )

Operating Activities

Net cash used in operating activities was $518,507 for the nine months ended September 30, 2011 and net cash used in operating activities for the nine months ended September 30, 2010 was $9.4 million. The increase of approximately $8.9 million in net cash flows provided by operating activities in the nine months ended September 30, 2011 was primarily a result of higher net income of $3.6 million, $3.6 million less increase in inventory, and $2.8 million less decrease in accounts and other payables, partially offset by higher increase in receivables of approximately $3.0 million as compared to the same period in 2010.

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 nine months period ended September 30, 2011 was $2.1 million and net cash used in investing activities for the nine months ended September 30, 2010 was $13.1 million. The increase of $11.0 million in net cash flows provided by investing activities in the nine months ended September 30, 2011 was primarily a result of $8.1 million less payment for fixed assets and $7.5 million proceeds in sale of land investment, offset by additional increase in restricted cash of $7.0 million as compared to the same period in 2010.

Financing Activities

Net cash used in financing activities for the nine months period ended September 30, 2011 was $3.5 million, which is a decrease of $24.2 million from $20.7 million net cash provided by financing activities during the same period in 2010. The decrease of the net cash provided by financing activities was primarily a result of decreased net bank borrowing and repayment of bank notes in nine months ended September 30, 2011 compared to the same period in 2010.

Loan Facilities

As of September 30, 2011, 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 $14.8 million as of September 30, 2011, compared with $25.2 million as of December 31, 2010. We are also carrying a long term loan of $15 million from DEG due in March 2016, with eight equal semi-annual principal payments commencing September 2012. In addition, on February 8, 2011, Industrial and Commercial Bank of China granted us a line of credit of approximately $16.2 million. The line of credit was granted to us with specific allocation of 38% to Junan Hongrun, 38% to Shandong Lorain, and 24% to Beijing Lorain, our three major operating subsidiaries. The line of credit is effective for one year. As of September 30, 2011, we drew down $626,125 from this line of credit.

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.

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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 September 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     80.20   $ 15,787,744  
Luotian Lorain Co., Ltd   PRC     100   $ 3,964,749  
Junan Hongrun Foodstuff Co., Ltd   PRC     100   $ 46,834,155  
Beijing Lorain Co., Ltd   PRC     100   $ 1,565,313  
Shandong Greenpia Foodstuff Co., Ltd   PRC     100   $ 2,404,320  
Dongguan Lorain Co,,Ltd   PRC     100   $ 156,531  
International Lorain Holding Inc.   Cayman Islands     100   $ 48,710,564  

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 January 2011, the FASB issued an Accounting Standard Update (“ASU”) No. 2011-01, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed Accounting Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The amendments in this Update apply to all public-entity creditors that modify financing receivables within the scope of the disclosure requirements about troubled debt restructurings in Update 2010-20. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20. In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted. This new accounting is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.

In June 2011, the FASB issued an Accounting Standard Update (“ASU”) No. 2011-05, Comprehensive Income (Topic 220). Under the amendments to Topic 220, Comprehensive Income, entities have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This new accounting is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.

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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 September 30, 2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2011, our disclosure controls and procedures were effective.

Changes in Internal Controls over Financial Reporting

During the fiscal quarter ended September 30, 2011, 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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. REMOVED AND RESERVED

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit No. Description
31.1

Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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: November 14, 2011

AMERICAN LORAIN CORPORATION

/s/ Si Chen                      
Si Chen
Chief Executive Officer

/s/ David She                 
David She
Chief Financial Officer

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