{ "docId": "019dd923-622c-750b-8b96-2fbe642fbf78", "docSlug": "69cc18cfe079", "documentTitle": "NQ Mobile (NQ)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2013-10-24 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 7, "pageCount": 81, "prevPage": 6, "nextPage": 8, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "dense", "nDataPoints": 6, "notes": "The slide uses forensic accounting logic to expose inconsistencies between SAIC filings and NQ's public claims.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-2fbe642fbf78/7", "deckHref": "/decks/019dd923-622c-750b-8b96-2fbe642fbf78", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-2fbe642fbf78.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-2fbe642fbf78#slide-7", "components": [ { "bbox": null, "kind": "callout", "text": "NQ reported accounts receivable from YDT of $9.3 million as of FY 2012, but YDT’s financials show total accounts payable of $3.7 million, once again showing the fraudulent nature of NQ’s financials.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-0935-737e-8dc6-c1524e40fce0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.78, "x": 0.11, "y": 0.59 }, "kind": "paragraph", "text": "YDT's income statement is below. It generated far less revenue, and paid far less in Business Tax than it would have were NQ's claims not fraudulent.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "38775eac-f009-42fb-8cac-940ed980fa20", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.23, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "According to SAIC financials, YDT only generated $2.9 million in 2012 revenue, which is 14% of what NQ purports to have generated in revenue from YDT. YDT would have had to generate at least the $20.2 million NQ purports to have generated from YDT...to say nothing of the 40% of YDT revenue purportedly attributable to other clients. YDT's Cost of Sales account would include any amounts YDT paid to NQ and its other customers. Instead, YDT generated only $2.9 million in revenue, and had Cost of Sales of only $1.8 million. NQ reported accounts receivable from YDT of $9.3 million as of FY 2012, but YDT's financials show total accounts payable of $3.7 million, once again showing the fraudulent nature of NQ's financials.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c69982cf-c231-4405-8973-1e9dd3e4cfcc", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.78, "x": 0.11, "y": 0.33 }, "kind": "paragraph", "text": "PRC GAAP requires that YDT's financial statements book revenue gross of payments to NQ and other customers. The Business Tax (sales tax) of $97,000 YDT paid was a fraction of the more than $4.0 million it would have paid if it were generating the volumes NQ claims. The lack of Business Tax payments confirms that YDT's revenue is shown in its SAIC file on a gross basis. Under the PRC tax regime, YDT pays Business Tax on the gross amount of revenue it collects from carriers. If NQ tries to argue that YDT is just your upstanding tax cheat, the argument would not hold water. The parties that purportedly pay YDT – China Mobile, China Telecom, and China Unicom – would require Business Tax invoices in order to avoid being taxed on monies paid out. For YDT to generate a Business Tax invoice, it would need to pay the tax to the Tax Bureau, which would cause it to show up in YDT's financials.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "efbc349e-a4d7-4558-9b20-7980139879e8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.78, "x": 0.11, "y": 0.75 }, "kind": "source-note", "text": "4 NQ claims that YDT derives roughly 60% of its revenues from NQ. Assuming YDT only has a 10% gross margin on NQ business, YDT would generate about $35 million. See NQ “Response to J Capital Report, NQ: Not at Any Price,” August, 2013.\n5 NQ 2012 20-F, p. F-17.\n6 Accounting Standards for Enterprises No. 14 – Revenues: http://209.200.107.14/english/law2_disp.asp?sublawcode=SUB57585711610141610&lawcode=LAW3544911991291514&country=China\n7 https://www.bj.10086.cn/Portals/0/revision/images/mwsphzglssdywfc.pdf\n8 “Upstanding tax cheat” is meant to illustrate the cognitive dissonance many investors in China companies exhibit when they argue that a given company is not a fraud – it merely cheats on taxes, resulting in understated revenues on SAIC financials.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8c4d7317-ece9-4584-bdf8-896c5ff2ae5c", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "3a14565a-ebd5-40d1-9482-b8f1a7e57634", "evidence": "The slide systematically compares reported financial data against external claims to identify inconsistencies indicative of fraud.", "confidence": 0.9 } ], "arcBeats": [ { "to": 15, "from": 6, "beatId": "950a2373-b77d-4c00-b8fc-2af98761fe7c", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Expose Contradiction", "beatSlug": null, "evidence": "The document presents several contradictions in NQ Mobile's financials and business practices.", "position": 0, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }