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NQ Mobile: frauduleus bedrijf of niet? Place your bets!

1. DeZwarteRidder 11 maart 2015 12:49

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   koers gisteren ca 3,61
   -----------------------
   NQ Mobile Co-Founder Returns to the Company
   
   March 3, 2015 | 9:16 am
   
   This article was originally published on March 2, 2015, at 11:46 pm.
   
   Summary:
   
   NQ Mobile’s (NQ) co-founder and former CEO Yu Lin has returned to the company, according to Beijing Times.
   At present, Lin does not have any official position.
   
   Why It Matters:
   
   Lin had been serving as CEO and chairman until December, when he resigned citing personal reasons. At the time, local media suggested that Lin was under investigation by the government.
   Lin’s resignation led to two other board members leaving the company, Jian Ding and Xiuming Tao, and also placed pressure on NQ’s shares. Lin holds a 12.1% stake in the company and controls more than 50% of the voting power.
   After a series of negative reports on NQ Mobile was published by Muddy Waters Research from 2013 to 2014, the company’s share price fell more than 70%.
   
2. DeZwarteRidder 19 maart 2015 12:38

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   NQ Mobile +10.8% after Q4 beat, mixed guidance
   Mar 18 2015, 17:20 ET | About: NQ Mobile Inc. (NQ) | By: Eric Jhonsa, SA News Editor [Contact this editor with comments or a news tip]
   
   NQ Mobile is guiding for Q1 revenue of $85M-$86M (+7-8% Y/Y), below a sole analyst estimate of $94.7M. However, full-year guidance of $450M-$455M (+36-37%) is above a sole estimate of $424M.
   Mobile value-added service revenue fell 9.9% Y/Y in Q4 to $24.4M; NQ blames a shift away from premium consumer mobile security sales - Qihoo and others provide tough competition - to other mobile apps/services. Mobile gaming (FL Mobile-driven) and "live mobile social video" revenue grew.
   Ad revenue rose 22.2% Y/Y to $20.4M, and enterprise mobility revenue (NationSky) surged 87% to $4M thanks to a "premium distributor agreement" with Apple and the acquisition of mobile distributor Trustek (aleady has a deal with Apple).
   Gross margin was 29.6%, down sharply from 48.8% a year ago but up from 27.8% in Q3. A shift towards lower-margin mobile hardware distribution sales caused the GM drop.
   GAAP operating expenses rose 22.9% Y/Y to $46.5M (compares with 32.2% revenue growth). Non-GAAP expenses, which exclude stock compensation and (notably) "expenses accrued for the handling of short-seller allegations," rose 19.1%. G&A spend totaled $31.4M, sales/marketing $6.6M (down Y/Y), and R&D $8.4M.
   NQ had 160.8M monthly active user accounts for its various products/services at year's end. $11.3M of NQ's $80M buyback authorization has been spent as of today.
   Shares have jumped to to $4.38 AH. The 52-week high is $20.85.
   
   
3. DeZwarteRidder 19 maart 2015 12:42

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   NQ Mobile (NYSE:NQ): Q4 EPS of $0.03 beats by $0.01.
   Revenue of $89.7M (+32.2% Y/Y) beats by $6.7M.
   Shares +5% AH.
   
   +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
   
   NQ maakt meer omzet met veel lagere winstmarges en veel minder winst.
   
   De winst is bijna niet de moeite waard.
   
   
4. DeZwarteRidder 21 maart 2015 12:37

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   NQ Mobile's Latest Earnings: More Of The Same Questionable Company
   Mar. 20, 2015 2:23 PM ET | 14 comments | About: NQ Mobile Inc. (NQ)
   
   Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
   Summary
   
   Total monthly active users barely increased from last quarter, contrary to NQ Mobile's previous claim of rapid user growth.
   Stock-based compensation expense continues to be extremely high.
   NQ Mobile's acquisition of Showself looks even worse now with additional data available.
   Even seven months after its previous CFO resigned, NQ Mobile still has not hired a new CFO.
   
   After taking a quick look at the Q4 of 2014 earnings release for NQ Mobile (NYSE:NQ), it is looking like more of the same questionable NQ Mobile instead of the "new and different" NQ Mobile promised by its co-CEO Omar Khan from its last earnings call.
   Total Monthly Active Users Barely Grew From Q3 To Q4.
   
   In its previous earnings release for Q1 to Q3 of 2014, NQ Mobile gave out a new monthly active user (MAU for short) number. This number includes its mobile security users along with "NQ Live, Music Radar and more recent investments such as Yipai and Showself."
   
   NQ Mobile claimed the total MAU number is 159 million on September 30, 2014.
   
   Now, three months later, the MAU figure reported by NQ Mobile is only 160.8 million on December 31, 2014.
5. DeZwarteRidder 21 maart 2015 12:42

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   This is an increase of only 1.8 million from three months ago, or a gain of just 1.1%. This seems to run contrary to what NQ Mobile was just telling investors on its Q1-Q3 conference call.
   
   On the call, the company's co-CEO Omar Khan was talking about how fast the users of its new acquisitions and emerging businesses are growing, along with how important this is. Such as:
   
   Active users are great. Highly engaged active users are the Holy Grail that every mobile internet company strives for. The significant traffic generation and scaling of our emerging consumer products has led to more engaged users, which positions us extremely well to begin to monetize that traffic going forward. I want to show you the statistics that get us all very excited within the company. This is the proof and evidence that our strategy is working and that our future remains bright.
   
   Here are some of the slides NQ Mobile used on that conference call to highlight the growth of users on its various consumer products.
   
   However, a 1.1% quarter-over-quarter growth in active users is highly underwhelming to say the least when compared to all positive statements made by the company on its user growth in its Q1-Q3 conference call just three months ago. All the talk of how great user growth is for its products is looking like another overinflated claim made by NQ Mobile.
   Stock-Based Compensation Is Still Consistently High
   
   The stock-based compensation (SBC for short) expense for NQ Mobile has been consistently high for all of 2014. For Q4 of 2014, it was $19.3 million, and the total SBC expense for the entire year of 2014 is $87.8 million. This means SBC, as a percentage of revenue, is 24.6% for the year.
   
   Here's a chart summarizing the stock-based compensation expense for each quarter, along with the average stock price of NQ Mobile during that period, based on the daily closing price.
   
   Quarter Stock-Based Compensation Expense Average Stock Price
   Q1 $23.4 million $17.70
   Q2 $25.4 million $10.48
   Q3 $19.7 million $6.11
   Q4 $19.3 million $6.71
   
   seekingalpha.com/article/3017436-nq-m...
   
   Mijn conclusie: NQ was een grote scam en zonder scam-activiteiten blijft er weinig over van dit 'bedrijf'.
   
   Het management wordt er echter wel rijk van dankzij absurde optie-regelingen.
6. DeZwarteRidder 8 april 2015 15:38

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   NQ Mobile's 2014 Annual Report Reveals Underperforming Businesses
   Apr. 7, 2015 1:36 PM ET | 10 comments | About: NQ Mobile Inc. (NQ)
   
   Information from NQ Mobile's 2014 annual report (20-F) seems to show two of their main business units greatly underperforming.
   NQ Mobile's global expansion plan also seems to be faltering as the 20-F shows overseas revenue declined by 21% in 2014 compared to 2013.
   NQ Mobile's Senior Executive VP of Finance, VP of Global Business Development and Senior Director of Product Management had all left the company earlier in 2015.
   
   On March 31, 2015, NQ Mobile (NYSE:NQ) filed their annual report (20-F) for 2014. The entire document is over 200 pages but looking through the filing it shows how many of main business units are underperforming.
   NationSky's Software Revenue Growth Seems To Be Greatly Underperforming Their Market
   
   NationSky is NQ Mobile's enterprise mobility provider in China. In previous articles I had talked about their business mix of reselling hardware and providing MDM and EMM software services. I stated how the valuable software revenue of the business seems to be barely growing at all. All the revenue growth is coming from reselling or distributing smartphones and tablets, a very low margin business that carries a very low valuation.
7. DeZwarteRidder 18 april 2015 09:37

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   NQ Mobile: Will The 3rd Jump Over $4 In 1 Month Be The Last Time It Ever Sinks Below $4?
   Apr. 17, 2015 12:03 PM ET |
   
   Summary
   
   NQ regains the $4 mark for the third time in one month.
   NQ has vacillated between the High $3's and low $4's since the unappealing three quarters of earnings that they reported in December.
   Considering the latest earnings report in March was no different than the last 3 quarters were, I think it will visit the $3's again.
   
   The Chinese Stock Market has been on fire as of late, gaining over 15% in the last month. NQ Mobile (NYSE:NQ) is no different, and has also joined in on the advances by gaining over 11% itself in one month. This meteoric rise over $4 by NQ marks the third time in a single month that it has re-taken the $4 mark after falling into the high $3's. Since there is no news, and the latest earnings report in March was no different (or better) than the last one in December, I think NQ will once again drop below the $4 level fairly soon.
   
   Anyone even remotely familiar with NQ knows about the controversy surrounding this stock. Muddy Waters released a report in OCT of 2013 accusing the stock of fraud, and the stock sunk down over 50% in a single day. Since then, the stock has recovered almost all of those losses. But a finding of deleted data by D&T, and an 11-month delay in their filing of a simple 20F, which also contained a surprising note of a 41% share dilution, has sent the stock down further than it has ever been. So this latest 11% gain is only a bounce up from its all time lows and still leaves it down almost 70% in a year.
   
   The latest quarterly Earnings report in March showed more huge losses in income:
   
   Non-GAAP income from operation for the fourth quarter of 2014 was $2.1 million, a 83.2% decrease from $12.6 million in the same period in 2013.
   
   Those losses were no different than the last 3 quarters of huge losses, and it made the full year results for 2014 even worse, as the net income/loss was a 4000% greater loss than 2013! ($1.9mil X 4000% = $76mil):
   
   Net loss attributable to NQ Mobile was $76.7 million for the fiscal year 2014, compared with net loss of $1.9 million in 2013
   
   Profit margins in 2014 also dropped almost 50% year over year, down from 59% in 2013 to only 32% in 2014:
   
   Gross margin, or gross profit as a percentage of net revenues, was 31.8% for the fiscal year 2014, compared with 58.9% in 2013
   
   All these things resulted in an EPS loss of 95 cents per share in 2014 compared to earning +6 cents in 2013. This company is going backwards at an alarming rate!
   
   In summary, these humongous year over year losses make me have severe doubts about this latest 11% "mini-rally" from the all time lows. With profit margins dropping almost 50% and net losses increasing 4000% in 2014, I have no reason to think that NQ will not sink below the $4 mark again in the near future.
   
   There are some people who are either buying or staying in the stock simply because they are convinced that NQ is not a total fraud as MW suggested it was. Is that really a good reason to buy a stock? Simply because it might not be a total fraud? But MW was 16 months ago and is now totally moot; because, as I've already said, the stock had recovered all its losses since the MW report, and then NQ self-destructed the stock again with its own egregious actions.
   
   This stock is no longer reliant on a "gamble" of whether or not it is a total fraud, or a "gamble" on a simple 20F filing. It is now just like any other stock, it's all about the earnings, and the earnings have been horrendous!
   
   There are a lot better stocks out there than one that is losing more & more money each successive quarter! Why not just wait & see if they ever stop going backwards before you buy it? They haven't stopped going backwards yet, so why buy it now?
   
   I think it would be much more astute to just stay away from this stock, and at least wait to see if they ever do stop going backwards with the huge losses.
   
   seekingalpha.com/article/3078106-nq-m...
8. DeZwarteRidder 24 april 2015 18:26

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   With Khan's resignation as Co-CEO and NQ Mobile eliminating the whole dual Co-CEO structure, it seems to suggest they are admitting defeat on their global expansion plans.
   
   Whether or not you agree with or believe that Omar Khan's resignation as Co-CEO and director is to help maximize the value of the company, that's the explanation he provided. So here's an updated chart keeping track of known executives and directors who have resigned or left NQ Mobile since October of 2013:
   
   Name Date Position Reason
   
   Will Jiang Nov-Dec 2013 Chief Strategy Officer unknown
   Ying Han July 2014 Director and Audit Chair personal reasons
   KB Teo Aug 2014 CFO family reasons
   Henry Lin Dec 2014 Co-CEO and Chairman personal reasons
   James Ding Dec 2014 Director personal reasons
   Xiuming Tao Dec 2014 Director personal reasons
   Bingshi Zhang Dec 2014 Senior VP of Finance personal reasons
   Michelle Ma Dec 2014 Director of Investor Relations unknown
   Kim Titus Jan 2015 Head of Communications retired
   Victoria Repice Jan 2015 Senior Director of Product Management unknown
   Alex Zhou Jan 2015 VP of Business Development unknown
   Omar Khan April 2015 Co-CEO maximize company value
   Conclusion
   
   Given the significant number of resignations for NQ Mobile in the past year and a half, you would think the company would have started to run out of executives and directors to resign by now. However that does not seem to be the case as it is still going strong. At least this time an explanation was provided as to why Khan is stepping down rather than just the two word explanation of "personal reasons" NQ Mobile has used repeatedly in the past.
   
9. DeZwarteRidder 21 mei 2015 22:11

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   NQ Mobile Inc. Reports Unaudited Financial Results For the First Quarter of 2015
   PR Newswire NQ Mobile Inc.
   May 19, 2015 5:00 PM
   
   BEIJING and DALLAS, May 19, 2015 /PRNewswire/ -- NQ Mobile Inc. ("NQ Mobile" or the "Company") (NQ), a leading global provider of mobile internet services, today announced its unaudited financial results for the first quarter of 2015.
   
   Highlights for First Quarter 2015
   
   Quarterly Net Revenues were $89.2 million in the first quarter of 2015, an 11.8% increase year-over-year from $79.8 million in the same period in 2014, exceeding the Company's previously issued guidance of $85.0 million to $86.0 million.
   Net Loss attributable to NQ Mobile was $17.0 million or net loss per ADS was $0.19 in the first quarter of 2015, a 21.3% improvement compared with a net loss of $21.7 million or a 44.1% improvement compared with a net loss per ADS of $0.34 in the same period in 2014.
   Non-GAAP Net Income attributable to NQ Mobile was $0.45 million or diluted Non-GAAP earnings per ADS was $0.00 compared with Non-GAAP net income of $9.6 million or diluted Non-GAAP earnings per ADS of $0.13 in the same period in 2014.
   Total Share Based Compensation Expenses fell to $12.5 million, a 46.6% decline year-over-year from $23.4 million in the same period in 2014.
   
   Operating Metrics as of March 31, 2015
   
   As a reminder, beginning in the third quarter of 2014, the Company began presenting the operating metrics of average monthly active user accounts ("MAUs") as redefined to include many emerging businesses previously not included in the Company's user account metrics. The MAUs presented herein include the user accounts in Showself, NQ Live and Music Radar, among others. As such, the MAUs presented herein should only be compared to operating metrics in the third quarter of 2014 and thereafter and not be compared to operating metrics in earlier historical periods, because there is not a way to accurately compare such results. The MAUs for the period presented herein and going forward are expected to be better aligned with the key underlying trends of a mobile internet platform company focused on driving mobile consumer traffic and engagement that can be monetized. The MAU statistics do not include the users addressed by the installation of the Company's advertising SDK into third-party applications. These indirect users generate impressions and search traffic that the Company can monetize outside of the user accounts generated directly by the Company's own portfolio of products and applications.
   
   Average Monthly Active User Accounts as of March 31, 2015: 175.4 million.
   
   "We are encouraged to see our performance in the first quarter of 2015," said Dr. Vincent Wenyong Shi, Chairman of NQ Mobile, "The management team remains committed to executing our business strategies and we are off to a good start. Our topline growth remains strong and we are beginning to see results from our efforts to increase monetization of our traffic-based mobile entertainment businesses. We look forward to the future while maintaining our focus on executing and delivering results."
   
   First Quarter 2015 Results
   
   Revenues
   
   Net revenues in the first quarter of 2015 increased 11.8% year-over-year to $89.2 million from $79.8 million in the same period in 2014.
   
   Mobile value added service revenues decreased 8.2% year-over-year to $25.1 million from $27.3 million in the same period in 2014. The decrease in mobile value added service revenues was due to the decrease in consumer mobile security revenues, which in turn was primarily due to the Company's moving its focus away from premium security services and focusing more on mobile applications and services. This decrease was offset partially by the growth in mobile gaming revenues and live mobile social video platform revenues. The increase in mobile gaming revenues was primarily the result of the rapid expansion of FL Mobile's business in both domestic and overseas markets, which has subsequently contributed to mobile gaming revenues increasing by 76.7% year-over-year from the same period in 2014. In addition, the fast growth of Showself's business led to the increase in our live mobile social video platform revenues
   
   Advertising revenues increased 4.3% year-over-year to $17.5 million from $16.8 million in the same period in 2014. The growth was due to increased monetization through advertising and successful third party application referrals resulting mainly from WAPS and Fanyue, the Company's online and offline advertising networks.
   
   Enterprise mobility revenues increased 33.6% year-over-year to $46.0 million from $34.4 million in the same period in 2014. The growth primarily resulted from the Company's premium distribution channel with Apple Inc. and the launch of several new generations of Apple products in late 2014 which carried forward in the first quarter of 2015.
   
   Other revenues decreased 54.8% year-over-year to $0.6 million from $1.2 million in the same period in 2014. Other revenues are generated primarily by providing technical contract services to third parties and fluctuate as such business is driven by individual projects.
   
   Cost of Revenues
   
   Cost of revenues in the first quarter of 2015 increased 39.8% year-over-year to $70.4 million from $50.4 million in the same period in 2014. The year-over-year increase was primarily due to higher cost of products for the enterprise mobility business, which totaled $41.3 million in the first quarter of 2015 compared to $31.5 million in the same period last year. In addition, the cost of revenue sharing, which is incurred mainly for the Company's mobile game business and live mobile social video platform increased to $8.2 million in the first quarter of 2015 compared to $3.8 million in the same period last year.
   
   Gross Profit and Gross Margin
   
   Gross profit in the first quarter of 2015 decreased 36.2% to $18.8 million from $29.4 million in the same period in 2014. Gross margin, or gross profit as a percentage of net revenues, was 21.0% in the first quarter of 2015, compared with 36.9% in the same period in 2014. Excluding the impact from the enterprise mobility business and costs associated with an increase in sales, gross margin was 39.0% in the first quarter of 2015, down from 60.8% in the same period in 201
10. DeZwarteRidder 21 mei 2015 22:13

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    Lachwekkende cijfers weer bij NQ, het ziet er niet naar uit dat dit bedrijf ooit winstgevend gaat worden.
11. DeZwarteRidder 24 mei 2015 18:21

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    Why NQ Mobile's Latest Earnings Look As Dubious As Ever
    May 22, 2015 4:46 PM ET | 8 comments | About: NQ Mobile Inc. (NQ)
    
    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
    Summary
    
    NQ Mobile's gross margins continue to decline despite stating there will be a recovery and improvement on the last earnings conference call.
    NQ Mobile's advertising revenue barely grew year-over-year for the quarter compared to significant growth rates for their China-based competitors.
    Despite reporting $9.1 million in net cash inflow from operations for the quarter, the company's total reported cash balance is still gradually declining.
    
    NQ Mobile (NYSE:NQ) reported Q1 of 2015 earnings on May 19, 2015. Just like the other previous earnings release and conference calls it seems to raise more questions about the company than provide answers. In fact the company looks as dubious as ever with the latest earnings release.
    The Worse Was Not Over For Gross Margins
12. DeZwarteRidder 22 augustus 2015 14:55

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    NQ Mobile: Comeback Story Or More Nonsense?
    Aug. 21, 2015 12:30 PM ET | 13 comments | About: NQ Mobile Inc. (NQ)
    
    Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
    Summary
    
    NQ Mobile appears to have been regularly changing their business focus the last two years or so.
    However their brand new "Showself" strategy and focus seems highly dubious.
    NQ Mobile's Showself app has tons of horrible user reviews and has tons of competitors in China as well.
    Reports also show FL Mobile has been losing market share since 2013 while two high level executives have left the company recently.
    
    Recently I've seen some NQ Mobile (NYSE:NQ) investors talk about a "comeback story" for the company. Part of this seems to be attributed to NQ Mobile's co-founder, COO, and Chairman Vincent Shi speaking at the MarcumBP Global Leadership Forum which takes place on August 27 in China.
    
    Vincent Shi is part of the "Comeback Stories" panel for this event. According to the press release the leaders of this panel "will share their hard-earned lessons on how companies can recover from a poor IPO response, setbacks in their financial results, or governance concerns to win back investor trust and rebuild shareholder value".
    
    Also due to the fact that NQ Mobile scheduled reporting their Q2 of 2015 earnings on August 27 at 8:30 AM in China (August 26 evening in the US) and the fact Vincent Shi would be talking about NQ's "comeback story" later that same day at the MarcumBP forum, some investors stated this must mean earnings for the company should be very positive.
    
    However this would appear to be a very foolish assumption and way of thinking. To begin with the standards for the MarcumBP "Comeback Stories" panel does not seem to be very high. For those not aware MarcumBP is NQ Mobile's auditor. NQ hired them last year in July after firing PwC, which refuse to sign off on their audit of NQ.
    
    Last year I had written how MarcumBP seems somewhat questionable as an auditor given they've been hired as an independent auditor by a fair number of dubious Chinese companies in the past after their original auditor resigned or was fired.
    
    In addition to NQ Mobile, two of MarcumBP's other clients are also speaking on the "Comeback Stories" panel.
    
    seekingalpha.com/article/3458306-nq-m...
13. DeZwarteRidder 22 augustus 2015 14:56

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    Various Legal Issues
    
    I also noticed some legal issues related to NQ Mobile while digging further into the company. According to an article from Law360 dated August 17, 2015, there is a new investor fraud lawsuit against NQ Mobile. The complaint states that "the company has hidden information from investors, diluted the stock through overvalued equity purchases and refused good faith offers to buy the business".
    
    The lawsuit also alleges that NQ "has taken to buying out small Chinese Internet firms for tens of millions of dollars in equity to expand the business and dilute shareholders without further offerings".
    
    In addition a Probes Reporter update which is dated August 12, 2015 cautions that investors have "a lot to worry about here" with NQ Mobile. It states that "on July 21, 2015, the SEC confirmed that the company is involved in ongoing enforcement proceedings dating back to late last year".
    
    Conclusion
    
    I don't really see anything to suggest a comeback story for NQ Mobile whether is the lack of growth in advertising and enterprise service revenue from previous quarters, the recent executive departures and declining market share of FL Mobile, or the questionable new Showself strategy. In fact it looks more likely it is adding up to just more nonsense like we have seen in the past. The upcoming earnings should help give a clearer picture.
14. DeZwarteRidder 6 februari 2018 20:22

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    NQ Mobile: Undisclosed Transfer Of Subsidiaries To Chairman Introduces Significant Risks - Price Target $0
    PRO Pick|
    Feb. 6, 2018 9:30 AM ET|
    4 comments|
    About: NQ Mobile Inc. (NQ)
    Rota Fortunae
    Long/short equity
    (206 followers)
    Summary
    
    Chinese corporate records lead us to believe that insiders control Tongfang Investment Fund, the firm that recently acquired NQ's mobile gaming and video businesses.
    
    One day after the deal with Tongfang was announced and eight months before it closed, NQ transferred its interest in FL Mobile and Showself to its Chairman, Vincent Wenyong Shi.
    
    Our research leads us to doubt every aspect of the transaction, including the cash payments and the $270 million note receivable, which together represents over 100% of NQ’s market cap.
    
    We find alarming similarities between NQ and Ambow Education, and we think NQ is likely to default when its convertible debt comes due in October 2018.
    
    The US phone number listed on press releases has been disconnected; the US HQ is for lease.
    
    Please read the full disclaimer at the end of the report before reading further. This report represents the opinion of the author. Investors should do their own due diligence and come to their own conclusions.
    Introduction
    
    Auditors are taught to evaluate corporate transactions for red flags. According to the PCAOB, the auditor should look for several warning signs including: 1) the presence of unconsolidated related parties, including variable interest entities; 2) previously undisclosed related parties; and 3) transactions involving parties that do not appear to have the financial capability to support the transaction. We believe all three were present in a recent transaction at NQ Mobile (NYSE: NQ).
    
    Investors likely remember NQ from Muddy Waters’s 2013 short report. Muddy Waters alleged that NQ misled investors by engaging in undisclosed related party transactions and fabricating the value of cash equivalents. The report sent the stock down 50%, and by 2015 three members of the management team, three board members and the auditor had resigned.
    
    Despite being called a zero, NQ’s market cap has hovered around $400 million, ostensibly supported by hundreds of millions in cash and the value of its mobile gaming business. But we have serious doubts about their purported values, and we recently uncovered an undisclosed transaction with NQ’s chairman that leads us to believe the end is finally near.
    
    On December 14th, 2017, NQ announced it completed the sale of its mobile gaming and video businesses, FL Mobile and Showself, to Tonfang Investment Fund. When the deal was first announced in March 2017, NQ disclosed that its chairman, Vincent Wenyong Shi, had an equity interest in FL Mobile and would continue to participate with Tongfang. We do not believe this disclosure fully describes Wenyong Shi’s involvement.
    
    Records filed with the Beijing Enterprise Credit Information Network (BECIN) show that on March 31st, 2017, one day after the deal was announced, NQ transferred its interests in both FL Mobile and Showself to Wenyong Shi. We found no disclosure that Wenyong Shi would become an equity owner in Showself, let alone the recipient of NQ’s entire equity interest. In fact, the purchase agreement states a portion of the interest to be transferred to Tongfang was to come from Wenyong Shi’s share.
15. DeZwarteRidder 6 februari 2018 20:23

    auteur info

    • DeZwarteRidder

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    2)
    Our research leads us to believe that Tongfang is controlled by NQ insiders and therefore NQ sold FL Mobile and Showself to insiders.
    
    An undisclosed sale to insiders would be highly concerning given that NQ failed three times to sell FL Mobile and ended up accepting a $270 million note after Tongfang delayed payment several times. The note represents 90% of NQ’s market cap and the remaining business loses $50 million pre-tax per year.
    
    But a questionable note receivable is likely the tip of the iceberg. We find alarming similarities between NQ and Ambow Education, another Chinese NYSE company that was accused of fraud (paywall). Ambow and NQ are linked by NQ’s president, Justin Chen, who was appointed to the audit committee at both companies on the same day members of their respected audit committees resigned. In both cases, Chen was an independent director, but a class action lawsuit against Ambow alleged he was involved in negotiating the very deals he and the audit committee were tasked with investigating. And we found that Chen’s law firm previously represented Bison Capital, the same firm that acquired an interest in FL Mobile a month before Chen was appointed to NQ’s board.
    
    The similarities do not end with Justin Chen. Like NQ, Ambow sold a subsidiary in return for a large account receivable, and investors questioned the validity of the company’s cash balances. After a shareholder successfully petitioned the Grand Court of Cayman Island to windup the business, the receivable was written down to cents on the dollar and the cash was restated. In the end, the debt holders took control and shareholders were wiped out.
    
    We think there is a significant risk NQ faces the same fate when the holders of NQ’s convertible debt begin asking questions about Tongfang. But a petition to windup NQ is not the biggest risk. We believe NQ is likely to default on its debt when it comes due in October 2018
    
    Our research leads us to believe that, like Ambow, the cash available to shareholders is significantly less than what is reported on NQ’s balance sheet. If we are correct, NQ is a company on the brink of financial distress and Muddy Waters’ prediction that NQ’s stock is a zero is about to come true.
    
    We reached out to NQ’s US investor relations only to find that the phone number long listed on its press release has been disconnected. We later came to find out that the US headquarters office space is currently for lease. We emailed a list of questions (found at the end of the report) to NQ’s CFO and investor relations. We did not receive a response.
    
    Note: NQ press releases generally provide figures in RMB; all figures in this report are stated in $USD using a conversion ratio of 6.44 RMB to 1 $USD.
    Background Of The FL Mobile Sale
    
    The sale of FL Mobile brings an end to a three-year process that saw numerous deal announcements and terminations with multiple parties. In all, we tally that NQ failed to sell FL Mobile three times (here, here and here) before closing with Tongfang.
    
    The operations of FL Mobile are housed in a Chinese entity, FL Mobile Jiutian Technology Co., Ltd. Because NQ is incorporated in the Cayman Islands and foreign entities are legally prohibited from directly owning certain Chinese companies, NQ owned FL Mobile thru a variable interest entity (VIE). Under this structure, NQ had contractual agreements with NQ Mobile Venture Capital Investment Co. (the VIE Subsidiary) which in turn held an equity interest in FL Mobile. Wenyong Shi also held an interest.
    
    Prior to the Tongfang deal, several transactions had reduced the VIE Subsidiary’s interest to 45.34%. Wenyong Shi owned 22% and Xinjiang Yinghe Equity Investment (Xinjiang Yinghe), an affiliate of FL Mobile’s management owned 12%. Their interests along with the other minority owners are shown in the chart below.
    
    Note: NQ’s VIE Subsidiary technically held a 63% interest in FL Mobile because it had the right to force the disposition of 5.66% of Wenyong Shi’s interest and all of Xinjiang Yinghe’s 12% interest, a fact that will become important later in the report.