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  "documentTitle": "NQ Mobile (NQ)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
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  "presentationDate": "2013-10-24 00:00:00",
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  "notes": "This is a research note page detailing forensic accounting concerns.",
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      "text": "The Company is underreporting and misallocating share based compensation at the parent company.",
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      "text": "The contract between Yidatong and NQ calls for settlement in one calendar month with payment on the 15th of the next calendar month. One calendar month settlement terms are normal trade terms and consistent with the contract between NQ and China Mobile which also call for one month settlement with payment being done on the 15th of each month. One month settlement is what other carriers have told us as well as retailers that sell NQ apps, including Telefónica and Verizon resellers.",
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      "text": "The Company is underreporting and misallocating share based compensation at the parent company. For 2012, the Company expensed $24.5 million in share based compensation and disclosed $1.84 million cash compensation to executive officers and directors. Over the same timeframe, the Company booked $5.6mm of total G&A expenses (or 9% of total operating expenses) at the parent of which we believe no share based compensation was allocated. We believe that share based compensation was also not allocated to the parent operations in 2011 and 2010. First, the Company footnotes that share based compensation was included in the consolidated financial statements while no such footnote was included in the parent company footnotes. Second, our analysis of the VIE and WFOE 2011 financial data shows that a nominal amount, if any, share based compensation was accounted for at these operating entities. With the parent generating $20 million in sales (approximately 22% of total sales) and the VIE and WFOE generating the majority of the remaining revenues, the accounting and allocation of share based compensation appears to be another sign of a sloppy audit. A substantial amount of the share based compensation was from US management and therefore should have been allocated to the parent in a much higher amount than shown.",
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      "text": "Based on the definition of cash and cash equivalents, our view is that the auditor was either not able to verify the cash or it's just another sign of a sloppy audit. The reclassification of the 2011 cash is a concern since that would imply that the auditor did see something since none of the cash and cash equivalents was put into level 1 assets as one would expect.",
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      "text": "As you can see from the level 2 definition, level 2 assets are much more risky and more difficult to value (compared to level 1 assets). The combination of cash at the VIE and the reclassification to Level 2 from Level 1 is a red flag. Especially, since we believe it was not transferred to the VIE in accordance with Chinese regulations.",
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      "text": "interest rates and yield curves. Examples include corporate bonds (investment grade, high yield), mortgage-backed securities, bank loans, loan commitments, less liquid listed equities, municipal bonds and certain OTC derivatives.",
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      "text": "Yidatong is not paying pursuant to the terms of the contract or in line with normal trade terms.",
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