Chinese education stock Neologic Animation (OTC: NANI) has recently been getting plenty of attention from investment newsletters thanks to paid promotions but before traders just in on this latest Chinese reverse merger, it might be a good idea if they consider what happened to two other Chinese education stocks: China Education Alliance (PINK: CEAI) andChinacast Education Corporation (PINK: CAST). Specifically, China Education Alliance (CEAI) and Chinacast Education Corporation (CAST) were highflyers until they became dogged by fraud allegations or internal strife and there is the old (apparently) Japanese saying (that sounds very Confucian) to the effect that: “The nail that sticks up gets hammered down.” So will Neologic Animation (NANI) get hammered down like China Education Alliance (CEAI) and Chinacast Education Corporation (CAST)? Here is a quick reality check by looking at all three:
Neologic Animation (OTC: NANI): A Chinese Pump and Dump?
Neologic Animation was founded by “renowned” child psychologist and author, Dr. Zhang, as an after school education Website for primary school students in China. Specifically, Neologic Animation offers interactive, web based games for difficult concepts that children must learn to succeed in school. According to various disclosures, transactions of $30k and $60k have occurred from M & B Capital Services, Ltd to recently promote Neologic Animation in various newsletters plus there have been posts on online message boards from traders who have received messages or emails pushing the stock. On Tuesday, Neologic Animation rose 12.34% to $0.163 (NANI has a 52 week trading range of $0.04 to $0.20 a share) for a market cap of $26.52 million plus the stock is up 176.7% since it started trading via a reverse merger earlier this year. I am not seeing any detailed reports about Neologic Animation alleging fraud but then again, the stock only just started recently trading on the OTC – meaning its not going to be on the trading screens of many investment houses or short sellers. Nevertheless and if Neologic Animation gets enough attention, you can count on some type of allegation to surface.
China Education Alliance (PINK: CEAI): Still Too Good to Be True?
China Education Alliance provides online education and on-site training in China plus it has a data base of more than 400,000 exams and test papers and courseware for college, secondary and elementary schools that it markets under the Famous Instructor Test Paper Store brand. On Tuesday, China Education Alliance closed at $0.60 (CEAI has a 52 week trading range of $0.42 to $3.75 a share) for a market cap of $6.35 million but I am not seeing much chart data from either Google Finance or Yahoo! Finance which is odd because CEAI is a Chinese reverse merger dating from 2004. However, its worth noting that on November 29, 2010, Kerrisdale Capital Management released areport claiming that China Education Alliance was fabricating financial statements made to the SEC and the allegation caused the company’s stock to sink by 79% to $2.45 while its market capitalization shrank by $61 million. Specifically, Kerrisdale Capital Management flagged discrepancies between China Education Alliance’s SEC filings and those with the State Administration for Industry and Commerce (SAIC) that showed the company had generated less than $1 million in revenue in 2008 (rather than the $24.85 million reported to the SEC). However, Kerrisdale Capital Management was a largely unknown firm prior to the report – which generated considerable publicity for it. Otherwise and for the first quarter, China Education Alliance reported that total revenues fell by 31.3% year-over-year to $4.8 million, gross profit fell by 52.4% to $2.2 million and the company had a net loss of $0.1 million. According to China Education Alliance, first quarter results were weaker on account of seasonality and the “prolonged effects of the unsubstantiated allegations that surfaced towards the end of 2010.”
Chinacast Education Corporation (PINK: CAST): Dogged By Allegations and Internal Strife
Chinacast Education Corporation intends to be a leading private, post-secondary education company in China that provides both physical campuses and a comprehensive online learning platform to address the market for university graduates with career skills and adult continuing education. However, its worth noting that Chinacast Education Corporation is not a Chinese reverse merger as the company was originally financed by Intel (INTC) and DirecTV (DTV) and Hong Kong's second largest conglomerate, Sun Hung Kai, back in 2000 and then it had an IPO in May 2004 on the Singapore Stock Exchange. In December 2006, the company was acquired by Great Wall Acquisition Corporation, a special purpose acquisition corporation (SPAC), and then it was listed on the Nasdaq Global Market in October 2007 but the stock recently got booted off of there for failing to file Form 10-K for 2011 (it also needed to restate financial results for 2010 in order to reverse a write-off of certain prepayments). On Tuesday, Chinacast Education Corporation rose 11.32% to $0.59 (CAST has a 52 week trading range of $0.30 to $6.45 a share) for a market cap of $28.92 million but the stock had traded between the $4 and $8 level for most of 2009 through to this year according to Yahoo! Finance charts. Nevertheless, Chinacast Education Corporation was hit by fraud allegations last year – including some in a detailedreport from Kerrisdale Capital Management. Besides the allegations, Chinacast Education Corporation has also been dogged by internal strife with the CFO stepping down earlier this year.
The Bottom Line. At the end of the trading day, it does not really matter if Chinese education stocks Neologic Animation (NANI), China Education Alliance (CEAI) and Chinacast Education Corporation (CAST) are really frauds because in the case of the last two stocks, the market has already made its decision.
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