NQ is a massive fraud. We believe it is a “Zero”. At least 72% of NQ’s purported 2012 China security revenue is fictitious. NQ’s largest customer by far is really NQ. Our research estimates that NQ’s real market share in China is only about 1.5%, versus the approximately 55% it reports. We estimate that its China paying user base is less than 250,000, versus the six million NQ claims.

Muddy Waters noted numerous lies and deceptions in NQ’s responses to our October 24, 2013 report. This report lists the ten most egregious falsehoods we noted from the October 25th conference call, and Co-CEO Omar Khan’s television interviews that same day with Fox Business News and Bloomberg.

It is beneficial for US investors to read Chinese media coverage of our NQ reports. This update consists of English translations of four articles that have appeared in Chinese media in the past week. There are two articles quoting certain of NQ’s purported partners (e.g., ZTE) as stating that NQ fabricated the partnerships. One article covers the disappearance of NQ / FL Mobile’s games from the iTunes store. One article is an IM exchange between Chinese investors and Chairman Lin. (The host of the chat was Xueqiu.com, a Chinese investment site.) Chairman Lin seems to take pain to avoid directly answering tough questions, such as those stating that NQ’s market share claims do not match with Chinese investors’ observations. The articles also mention Chairman Lin’s (unverified) claim that NQ has sued Muddy Waters in China.

NQ’s largest purported source of revenue, Yidatong (“YDT”), is controlled by NQ, and its primary purpose is facilitating NQ’s fraud. Believing NQ’s narrative of YDT – that YDT is an independent company annually facilitating billing of approximately $35 million for a variety of developers – at this point requires investors to suspend reason. If the following does not convince an investor that NQ’s YDT narrative is fabricated, then the investor is either too emotionally invested in the stock, or is gullible enough to still believe in Santa Claus.

The veneer of U.S. management has been integral to taking NQ’s fraud to a one-time value of $1.1 billion. Matthew Mathison, NQ’s vice president of capital markets, has recently led the effort to try to deflect fraud charges from both Muddy Waters and a China-based research firm called J Capital Research. However, Mr. Mathison has failed to disclose to investors his professional history with J Capital Research. He further seems not to have attempted to dispel misconceptions some investors might have about why he joined NQ. At the same time, Mr. Mathison has told investors contradicting stories about NQ’s largest purported revenue source, and undisclosed related party, Yidatong.

In a letter to NQ’s independent committee, MW offers to engage, at our own expense, an independent and qualified accounting firm to evaluate the independent committee’s investigation into whether NQ Mobile is a fraud.

MW analyzes NQ’s dismal Q4 2013 results, which included negative operating cash flow and a GAAP loss.

NQ admitted widespread tampering with data reviewed during the investigation. (Committee to NQ: During the course of our fraud investigation, we caught you trying to defraud us.)

We strongly suspect that: NQ deliberately held back both admissions so that NQ China insiders and their proxies could illegally dump more shares at existing shareholders’ expense, and NQ is again misrepresenting the true state of its audit and relationship with PwC Zhongtian (“PwC”). NQ’s prior statements and actions make clear that it has understood for some time that PwC will never issue an unqualified audit opinion for 2013. The language about PwC requesting a larger audit scope is a misrepresentation designed to keep the passengers on the sinking NQ ship (so that NQ insiders can keep the lifeboats for themselves).