China Green Material (PINK:CAGM)

We are removing China Green Material Tech. from the GeoSpecial list. Yesterday's news regarding the consummation of a private placement...

On June 25, 2010, China Green Material Technologies, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain investor (the “Purchaser”) relating to the issuance and sale of an aggregate of 1,866,666 shares of the Company’s common stock, par value $0.001 per share (the “Shares”), in a private placement transaction (the “Private Placement”). The aggregate purchase price for the Shares was $2,800,000 (the “Aggregate Purchase Price”). 

 ...magnifies the dilution hurdle we discussed in our June 3, 2010 update.  We will revisit CAGM if the company proves it can work through dilution as it has in the past.

We view this event as extremely detrimental to establishing shareholder confidence.

Case in point: Excerpt from the 2010 first quarter 10Q:

"As of March 31, 2010, we had working capital of $18.17 million. The ratio of current assets to current liabilities was 9.1:1. The working capital includes cash and equivalents of $13.84 million and net accounts receivable of $5.71 million. Most of our receivables are owed to us by our primary customers for products purchased from us, and we consider the receivables as collectible in the ordinary course. We expect to collect substantially all of the March 31, 2010 balance of receivables during 2010."

"We believe that our current resources are sufficient to fund ongoing operations for the foreseeable future."

Added to the GeoSpecial list on November 17, 2009 @ $1.55

Catalyst: Strong margins; strong balance sheet; favorable industry; stock was selling near book; history of profitability.

Peak performance: Reached a high of $2.99 on December 28, 2009
Current Price: $2.28

Current road block: Dilution; Capacity expansion won’t be a factor until second half of the year which may hurt short-term EPS growth.

Remains on the GeoSpecial list.  The company remains bullish. CAGM has a good history of working through dilution.