Three Microcap Quick Hits: China 3C Group, Paragon Tech, Answers.com

1. China 3C Group (CHCG.OB) shares dropped after the company announced that it had sold $11.74 M worth of common shares in a private placement at an enormous discount. Although shares traded for over $8 as recently as Monday morning, China 3C Group only charged the private investors $5.60 per share. That’s a 30+% haircut!

CEO Zhenggang Wang said:

We believe this new sale of China 3C’s equity will enhance shareholder value by providing the company with a cash infusion that will enable it to pursue certain business opportunities in China that are currently being considered by management. Although the sale price of the shares was at a discount to the current trading price of the company’s common stock, we believe that management’s ability to act swiftly to negotiate this transaction without the assistance and associated fees of a placement agent demonstrates the company’s desire to maximize the benefits of the capital investment in light of a discounted sale price.

I disagree. The action, in my opinion, can only mean one of three things:

That management was not savvy enough to negotiate a better deal;

That management feared it could not sustain the stock price long enough to lock in financing at a more reasonable discount; or

That management does not have shareholders’ best interests in mind. I am currently long CHCG.OB, and do not like this move at all.

2. Air Industries [AIRI.OB] and Paragon Technologies (PTG) were both up big on Tuesday. I didn’t see any news or SEC filings to explain either move. If you know why, please comment or drop me a note.

3. Paul Kedrosky is calling the Answers.com (ANSW) purchase of Lexico a land grab for the generic domain names dictionary.com, reference.com and thesaurus.com. I agree that the names have value, but by any metric Answers.com overpaid.

Disclosure: I am long CHCG.OB, AIRI.OB and PTG. I have no position in ANSW.

Comments

[ChinaMart:]

I like how CFSG grows itself better: using cold hard cash from operations and a $10.7M chest.

biz.yahoo.com/prnews/0...

2007 Jul 18 10:51 AM

[joewwood:]

have you ever looked at Zix (ZIXI)? recently added to Russell microcap index. There's a push now to have medicare mandate e-presrcibing which coulod cause zixi to explode!

2007 Jul 19 01:24 PM