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

by: Microcap Speculator
1. China 3C Group (OTC:CHCG-OLD) 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 (NASDAQ:ANSW) purchase of Lexico a land grab for the generic domain names, and I agree that the names have value, but by any metric overpaid.

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