Yongye Intl (NASDAQ:YONG)

In 2010, we entered into an agreement with Wuchuan Shuntong to acquire the permit for the rights to explore, develop and produce lignite coal resources in a certain area of Wuchuan County. The cash consideration of the permit was approximately RMB 240 million or USD $35 million. The permit allows us to complete all necessary administrative procedures and obtain government approvals to acquire the permit for the rights to explore, develop and produce lignite coal resources (“Mineral Rights”). We believe that the Mineral Right will allow us to secure a long term supply of humic acid, which is a major raw material used in the manufacture of fulvic acid liquid products, and which is sourced from lignite coals. We are still in the process of securing necessary government approvals. If we are not able to obtain the government approvals on the Mineral Rights, our vertical integration strategy could fail and if we are not able to obtain the exploration rights related thereto without the payment of any additional material consideration by December 31, 2011, the holders of the convertible preferred stock will be able to redeem all or a portion of the outstanding shares of the convertible preferred stock at a redemption price equal to the original purchase price thereof, plus a premium designed to generate a 30% internal rate of return to such holders, unless we are able to recover the RMB 240 million originally paid for such rights by June 30, 2012. In the event we need to recover the prepayment to Wuchuan Shuntong, litigation may be necessary. Moreover, the supply of lignite coal to us will be dependent upon lignite coal availability in the market. If we are unable to obtain adequate quantities of lignite coal at economically viable prices which meet our specifications, our financial condition and results of operation could be adversely affected.

In addition to a fertilizer registration certificate, we are required to hold a variety of other permits, licenses and certificates to conduct our business in China including relevant construction and environmental permits and certificates in connection with the commencement of operations at Inner Mongolia Yongye Fumin Biotechnology Co., Ltd. ("Yongye Fumin"). We may not possess or receive all the permits, licenses and certificates required for our business or for which application has been made. In addition, there may be circumstances under which the approvals, permits, licenses or certificates granted by the governmental agencies are subject to change without substantial advance notice, and it is possible that we could fail to obtain the approvals, permits, licenses or certificates that are required to expand our business as we intend. If we fail to obtain or to maintain such permits, licenses or certificates or renewals are granted with onerous conditions, we could be subject to fines and other penalties and be limited in the number or the quality of the products that we would be able to offer. As a result, our business, result of operations and financial condition could be materially and adversely affected.

Absaroka Capital Management, LLC Report on Yongye International, Inc. (NASDAQ: YONG)

Summary: (For the complete report, please visit:  http://absaroka.com/YONG.html)

Yongye International, Inc. (NASDAQ: YONG) has fraudulently misrepresented its business and thus is massively over-valued by the market at this time. 

Absaroka's significant concerns about Yongye include the following material issues:

1.       The $35.0mm cash acquisition of the Wuchuan Lignite Coal Project is not a legitimate transaction and appears to be a scheme to transfer funds out of the Company at the expense of public shareholders

2.       Yongye falsely claims its main fertilizer product, Shengmingsu, was developed by 38 scientists at Stanford University: Absaroka provides a letter from Stanford University certifying it has no connection to Yongye's Shengmingsu fertilizer and Yongye does not have permission to utilize Stanford's name, trademark, or images in its advertising and marketing efforts.

3.       Intertwined relationships with its two largest suppliers appear to allow the Company to fraudulently manipulate earnings:  Wuchuan Sanda was ordered to cease production by the government and Wuchuan Shuntong does not supply nearly the amount of humic acid claimed by Yongye

4.       The $32.3mm Hebei Customer List acquisition has limited industrial logic and appears to be another scheme by Yongye Management to falsely manipulate earnings

5.       Yongye's Shengmingsu is minimally effective for farmers and Yongye's product claims do not correspond with reality

6.       The new bank loans are illogical relative to the supposed cash balance, which raises doubt about the reality of the cash balance on the unaudited 03/31/11 10-Q balance sheet

7.       Excessive management compensation relative to peers is diluting shareholder interests because of continued large share-based compensation grants

8.       The unsatisfactory auditor history raises grave concern about the validity of historical financials and forward-looking guidance

Any of these issues on a stand-alone basis should be enough to convince public shareholders to question the current valuation and pursue the "Wall Street Walk" form of shareholder activism