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No. of Recommendations: 6
I can smell the fear on these boards as we have reached the maximum pain threshold from the YONG stock price volatility.

It was hard working today as I was thinking to myself how YONG can regain the trust of its shareholders.

We do not have much, if any, trust of YONG’s management despite the benefit of having the GG team complete all of their hard work and due diligence over the years. The GG team has had several face to face meetings with management and has been in constant contact with management with numerous follow-up calls and e-mails on various items and points of clarification.

In the end, if management is going to commit fraud, they can easily defraud our GG team, their external auditors (KPMG), and their lending bank (China Everbright Bank).

It will take some time for YONG to build the trust of investors. The language barrier, cultural differences, and the way of conducting business are so much different than what we are accustomed to here in the U.S. Furthermore, it does not help any of the above matters when all of this business is happening half way around the world.

Unfortunately, I expect the stock to continue to be volatile for the near term. As the SEC works to help weed out some of these fraud Chinese companies, the remaining companies should stand to benefit primarily as a result of surviving the additional scrutiny.

YONG has continued to be proactive with its shareholders in response to attacks from short sellers. They have issued press releases that refute the claims of short sellers as well as continue to communicate the latest operational developments, financial data, and company achievements/awards. Furthermore, YONG continues to report timely financial statements signed off by KPMG with no significant internal control deficiencies.

So, what are YONG’s options? Their options are limited.

1. Share buy back
2. Dividend
3. Private equity / relisting in China/Hong Kong

A dividend or share buy back would not be good use of corporate funds as YONG needs to continue to pour any free cash flow into its growing business. In addition, the hurdles and restrictions to remove cash from China further prevent any corporate action.

During the last conference call, Mr. Yu stated that management and the Board of Directors are looking into various options to properly reflect the value of the stock.

The loan from a major Chinese bank was a good step towards building investor trust.

In conclusion, the end result is that we must remain patient, keep a level head, and do not invest more capital than we can tolerate to lose.

Good luck everyone and hang in there.

- Looking forward to next month’s China trip. It could not come at a better time…

P.S. Back in October 2010, CCG Investor Relations released a White Paper on some of these issues and how a company can regain the trust of its investors. It was not a bad read, especially at this time.
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