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OK this is my final try with this convoluted structure

I did read wrong again. But this time through it's stranger than thinking there were two separate plants bought. It looks like they bought the same thing twice and gave it a different name the second time around.

Initial interpretation was they bought the 2000 ton plant from Inner Mongolia and then built an additional 8000 to plant for 10,000 tons total

In 2009 they bought a property they refer to as Shengmingsu--I thought this was a different facility. Instead it appears they are buying the same facilities they built and bought at shareholder expense by issuing shares. What exactly did the $16 million get them since they already owned the 8000 ton plant they built and they paid for the 2000 ton plant when the company was formed? I know land use was acquired that was $4 million. But there was property and equipment bought and a whole lot of goodwill went to the CEO --- $10 million -- again at shareholder expense and the issuance of shares.

This does not make me like them better and even at the actual capacity they were around 50% utilized. At 18,000 tons produced in 2010 and including the newest facility they would be 45% utilized today. If they make 29,000 tons in 2011 they will be at 72%. I am including all production and capacity. I will wait to see if they can produce and sell 60% more product at current prices. This stupid mistake would have been avoided if they would list their plants and SF like CGA does. It would also give us a better measure -- tons per square foot. It is like retail measuring sales per square foot.

I hate to be making all these errors. I do read carefully but have missed some detail in the slightly convoluted structure. Who buys something twice? These errors make my points look irrelevant and I am even sorrier for that because I don't think they are without merit

I am not a big fan of any of these reverse mergers so far.
The structure is one called a round trip and it allows the owner of the PRC business to become the CEO of the new foreign listing. Even the PRC looks at this askance and requires some very strict rules to be in compliance. Companies warn that the seal of approval from the PRC is at risk. The conflict of interest could not be plainer. Your interests as a shareholder are not being served.

The round trip nearly guarantees that the owner is going to do well if the reverse merger goes through and shareholders that end up with common shares at the end are just a necessary by-product of the process.

Consider YONG has diluted shareholders by 170% in three years and is not producing much in the way of CFFO or returns to the shareholders. They were CFFO negative until 2010 and then CFFO was only $15 million. Free cash flow is non-existent

Inventory and receivables are burning cash from operations and this does not change over the years. Inventory stocking and receivables averaged out over the year are still burning working capital on an annual basis.

The coal mining venture is inexplicable. Coal is cheap. Mining is expensive. Can they mine it cheaper than $50 or less per ton? They already spent $35 million just for the rights to look. They have an unproved and undeveloped property and they are going to have to spend money to get it to the developed and proved stage. Then they will either have to spend cash to mine it themselves or pay someone to do it. I don't know where Global Gains is getting the information they have a mining company lined up to do production--conference call or management comments to you? It is not part of the SEC documents. Weathered coal is abundant, cheap and readily available. I see no reason to lock down a supply and vertically integrate. It's an expensive venture that does not look warranted by the current business and the future prospects. Fulvic acid fertilizer does not have limitless growth potential if CGA and Roth can be believed. CGA just bought a conventional fertilizer co seeing a future slow down in humic acid based product presumably. Sinking high capex dollars into a commodity that is cheap and plentiful seems like a tremendous waste of shareholder dollars. But they don't really have to answer to the marginal US investor.

How do they sell product at 3X to 4X the cost of competitor's fertilizer? Roth recently downgraded them seeing slowing sales in part due to competition and in part from declining demand. YONG could be faced with a price war or loss of business and earnings and cash flow may suffer

Administrative costs decrease operating income. If you look at CGA, their margins are almost double. It leads me to believe there is waste in the administrative structure somewhere at YONG. The production lines looked crude but maybe Tim's pictures did not show the automated sophistication. Without being there it is impossible to know how much product can be manufactured packaged and shipped by the employees on the floor. By several accounts, both CGA and YONG look nearly deserted when investors and analysts have visited.

The round trip reverse merger is designed and enacted to reward the owner/CEO and the early investors. They get cash and options, shares and warrants and shareholders get commons shares and extreme dilution.Do you feel well-served by YONG? Does it annoy you that the insiders have made a lot of money at your expense? And that there are deals in the works that may end up being expensive distractions?

One final point about all of these companies and that is the comparison of the Chinese filings to the US documents. Tim said YONG's SAIC statements match the SEC documents. Unfortunately he doesn't have copies. I think you should get copies and have them translated and let all the subscribers look at them for themselves by putting them on the boards at the newsletters. You have the full faith and force of the Motley Fool behind you and this should be easy to do. If they match then great--one problem crossed off the list and the company begins to look credible and ethical.


I hate that I made these two errors. It detracts from the real discussion and I spend time backtracking and looking incompetent which is a shame because there are real issues to discuss with these companies and missing on details makes that more difficult
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