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Author: nanoguy One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 259  
Subject: Re: Earnings FY2011 Date: 3/16/2012 3:49 PM
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LeKitKat,

Thanks so much for weighing in on this. Have greatly missed your good assessments and very clear expression on the boards. We always value your opinions.

I too was surprised at the quarter, and agree those are very high G&A expense jumps. Also, your alert has raised my attention level on those receivable levels and DSO.

Cannot be sure we are not being played here, of course, when it seems the distribution pipeline is being loaded to inflate 2011 sales ... which may then be used to lend credibility to the 2012 predictions for growth. All perhaps to boost stock price?!

However, this approach is also consistent with a very early stage company trying to rapidly acquire market share and build a sustainable business. This "fill the pipeline" and "offer very liberal terms to acquire new customers" was used successfully by even established businesses like Texas Instruments when they entered the computer and calculator business. Some of those new products were immensely successful, like the 810 printers, and others eventually had to be pulled from the product lines.

That business model is almost exactly the one used for many software products as a means of rapidly acquiring a user base, especially if there were existing competitive products already out there (think Autodesk and Lotus 1-2-3). It was necessary to overcome the user's natural inertia when is came to change.

There is also the considerable influence of politics to take into account. If an existing political structure wants companies to assist in furthering the availability of credit to agriculture (along with improving farming methods), then companies that show their willingness to do that to whatever extent they think they can sustain are more likely to be treated favorably in that context.

We have seen many indications that the PRC is trying to educate its farm population and dramatically increase its agricultural output. YONG's alignment with this policy could certainly help maintain a favorable tax and license situation, as it would here in the U.S.

Wish that crystal ball worked better! But all I am trying to point out here is that I fall into that group of MDPers who do not think that company management has to be naive, or that the company will necessarily fail, based on the sales and receivables approach taken. It depends upon management's growth plan and the context in which they operate.

I hope that I am not just fooling myself, because I strongly believe in the mission and methods as expressed by management. Or that I have started "rationalizing" and "fallen in love" with this stock.

That is one reason the "sit down and take a look" comments have been so welcome. It at least makes me do another "reality" check.

Onward thru the fog,
nano
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