united states district court southern district of new … · 2013. 10. 30. · 25. ding, zhang,...
TRANSCRIPT
UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK
TAHSEEN GHAURT, Individually and On No.
___________________________
Behalf of All Others Similarly Situated,CLASS ACTION COMPLAINT FOR
Plaintiff, VIOLATIONgSOF THE FEDERALSECURITI]
V.
NQ MOBILE, INC., HENRY YU LIN,OMAR KHAN, SUHAI JI, JAMES DING,JUN ZHANG, WEIGOU ZHAO, XUZHOU, VINCENT WENYONG SHI YINGHAN, PIPER JAFFRAY & CO.,OPPENHEIMER & CO. INC., andCANACCORD GENUITY INC.,
Defendants.
I. INTRODUCTION
1. Plaintiff Tahseen Ghauri (“Plaintiff’), by his undersigned attorneys, alleges upon
personal knowledge as to his own acts, and upon information and belief as to all other matters,
based on the investigation conducted by and through Plaintiffs counsel, which included, among
other things, a review of Defendants’ public documents, conference calls and announcements
issued by NQ Mobile, Inc. (“NQ” or the “Company”) (f/k!a NetQin Mobile Inc.), wire and press
releases published by and regarding the Company, and advisories about the Company, and other
information readily obtainable in the public domain.
II. NATURE OF THE ACTION
2. This is a federal securities class action on behalf of all investors who purchased or
otherwise acquired NQ securities that traded on the New York Stock Exchange (“NYSE”)
between May 5, 2011, and October 24, 2013 inclusive, including those investors who purchased
NQ American Depository Receipts (“ADRs”) in its initial public offering (“IPO”) commencing
on May 5, 2011 pursuant to NQ’s Registration Statement and Prospectus (together, the
“Registration Statement”). This action is brought on behalf of the Class for violations of
Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §
77k, 771(a)(2) and 77o, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the
“Exchange Act”), 15 U.S.C. § 78j(b) and 78t(a), and Rule lOb-5 promulgated thereunder by the
Securities and Exchange Commission (“SEC”), 17 C.F.R. § 240.lOb-5.
3. NQ purports to provide security solutions for the mobile phone market. The
Company is incorporated in the Cayman Islands and maintains principle executive offices in
Beijing, China and Dallas, Texas. NQ trades on the NYSE under the ticker symbol “NQ”. The
Company’s securities began trading on the NYSE on May 5, 2011.
4. On October 24, 2013, the short-selling investment firm Muddy Waters LLC
(“Muddy Waters”) issued a detailed 81-page report entitled “NQ Mobile: China Fraud 2.0”
regarding NQ’s accounting practices, customer base and policies (the “Muddy Waters Report”).’
Among the allegations raised in the Muddy Waters Report, were that the Company had a
Chinese market share of only 1.5%, rather than the 55% share the Company publicly claimed,
and that the NQ had minimal, if any, cash reserves.
5. On the release of the Muddy Waters Report, the Company’s share price fell from
a close of $22.88 on October 23, 2013 to close at $12.09 on October 24, 2013, and trading was
suspended throughout the day.
“Shorting” a security is motivated by the belief that a security’s price will decline, enabling it to bebought back at a lower price to make a profit — i.e., the investor is betting that the security will decrease invalue. See http://www.investopedia.com/terms/s/shortselling.asp.
6. Then, on October 25, 2013, i\Q issued numerous press releases denying the
allegations raised in the Muddy Waters Report and conducted a conference call attempting to
defuse the scathing implications contained therein. Despite these efforts, once the stock resumed
trading from its suspension in the late afternoon, share prices dropped an additional 12%, closing
at $10.63 in just a few hours of trading.
7. In less than 36 hours, NQ’s securities depreciated by approximately 56%,
representing over $500 million in losses to investors. Trading in the Company’s securities
reached its heaviest volume in its history on October 24, 2013, with a volume of approximately
29,378,600 shares traded.
8. As noted in more detail herein, NQ’s previously released statements regarding,
among other things, its financial performance and product efficacy contained materially false
information or omitted information necessary to make those statements not misleading. As a
result, Plaintiff and other members of the Class purchased NQ securities at artificially inflated
prices and thereby suffered significant losses and damages.
III. JURISDICTION AND VENUE
9. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
the Exchange Act, as well as Sections 11, 12(a)(2) and 15 of the Securities Act.
10. This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §l33l and 1337 and Section 27 of the Exchange Act, 15 U.S.C. §78aa.
11. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28
U.S.C. §1391(b), as many of the acts and practices complained of herein occurred in substantial
part in this District and the Company is traded on the NYSE, which is located in this District.
12. In connection with the acts alleged herein, Defendants, directly or indirectly used
the means and instrumentalities of interstate commerce, including, but not limited to, the mails,
interstate telephone communications and the facilities of the national securities markets.
IV. PARTIES
13. Plaintiff Tahseen Ghauri. as set forth in the accompanying certification
incorporated by retèrence herein, purchased NQ securities during the Class Period and has been
damaged thereby.
14. Defendant NQ is a Chinese corporation with its American executive offices
located at 4514 Travis Street, Suite 200, Dallas, TX 75205. NQ claims to be the world’s most
popular provider of mobile security software.
15. Defendant Suhai Ji (“Ji”) is the Company’s Chief Financial Officer (“CFO”). He
has served as NQ’s CFO since November 2010, and prior to joining the Company, was a director
in the NYSE Beijing Representative Office, where he was responsible for the business
development of NYSE in China. Ji is responsible for the Company’s overall financial and
capital allocation strategy as well as treasury, financial planning, tax, internal audit, investor
relations and investments. Ji signed the Registration Statement as well as Sarbanes Oxley
(“SOX”) certifications during the Class Period attesting that NQ’s financial statements were
accurate and that its systems of internal controls were adequate.
16. Defendant Henry Yu Lin (“Lin”) is the Company’s Co-Chief Executive Officer
(“CEO”). Lin signed the Registration Statement as well as SOX certifications during the Class
Period attesting that NQ’s financial statements were accurate and that its systems of internal
controls were adequate.
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1 7. l)efendant Omar Khan (“Khan’) is the Company’s Co-CEO. Khan signed the
SOX certifications during the Class Period attesting that NQ’s financial statements were accurate
and that its systems of internal controls were adequate.
18. Defendant James Ding (“Ding”) is a member of the Company’s board of directors
(the “Board”) and signed the Registration Statement.
19. Defendant Jun Zhang (“Zhang”) is a member of the Board and signed the
Registration Statement.
20. Defendant Ying Han (“Han”) is a member of the Board and signed the
Registration Statement.
21. Defendant Weiguo Zhao (“Zhao”) is a former member of the Board and signed
the Registration Statement.
22. Defendant Xu Zhou (“Zhou”) is a former member of the Board and signed the
Registration Statement.
23. Defendant Vincent Wenyong Shi (“Shi”) is a former member of the Board and
signed the Registration Statement.
24. Defendants Lin, Khan, and Ji are referred to as the Individual Defendants.
25. Ding, Zhang, Han, Zhao, Zhou and Shi are referred to as the Director Defendants.
26. Defendant Piper Jaffray & Co. (“Piper Jaffray”) is a United States investment
bank incorporated in Delaware and holding its principal place of business in Minneapolis,
Minnesota. It was an underwriter and sole bookrunner for the Company’s IPO.
27. Defendant Oppenheimer & Co. Inc. (“Oppenheimer”) is a United States
investment bank headquartered in New York, New York. It was an underwriter for the
Company’s IPO.
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28. Defendant Canaccord Genuity Inc. (“Canaccord”) is an investment bank with its
United States headquarters in New York, New York. It was an underwriter for the Company’s
IPO.
29. Defendants Piper Jaffray, Oppenheimer, and Canaccord are referred to as the
Underwriter I)efendants.
30. Because of the Individual Defendants’ positions within the Company, they had
access to undisclosed information about NQ’s business, operations, operational trends, financial
statements, markets and present and future business prospects via access to internal corporate
documents (including the Company’s operating plans, budgets and forecasts and reports of actual
operations and performance), conversations and connections with other corporate officers and
employees, attendance at management and Board meetings and committees thereof and via
reports and other information provided to them in connection therewith.
31. It is appropriate to treat the Individual Defendants as a group for pleading
purposes and to presume that the false, misleading and incomplete information conveyed in the
Company’s public filings, press releases and other publications as alleged herein are the
collective actions of the narrowly defined group of defendants identified above. Each of the
Individual Defendants, by virtue of their high-level positions with the Company, directly
participated in the management of the Company, were directly involved in the day-to-day
operations of the Company at the highest levels and were privy to confidential proprietary
information concerning the Company and its business, operations, growth, financial statements,
and financial condition, as alleged herein. The Individual Defendants collectively were involved
in drafting, producing, reviewing and/or disseminating the false and misleading statements and
information alleged herein, were aware, or recklessly disregarded, that the false and misleading
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statements were being issued regarding the Company, and approved or ratified these statements,
in violation of the federal securities laws.
32. As officers and directors of a publicly-held company whose securities were, and
are, registered with the SEC pursuant to the United States federal securities laws, the Individual
Defendants each had a duty to disseminate prompt, accurate and truthful information with
respect to the Company’s financial condition and performance, growth, operations, financial
statements, business, markets, management, earnings and present and future business prospects,
and to correct any previously-issued statements that had become materially misleading or untrue,
so that the market price of the Company’s publicly-traded securities would be based upon
truthful and accurate information. The Individual Defendants’ misrepresentations and omissions
during the Class Period violated these specific requirements and obligations.
33. The Individual Defendants, because of their positions of control and authority as
officers and/or directors of the Company, were able to and did control the content of the various
SEC filings, press releases and other public statements pertaining to the Company during the
Class Period. Each of the Individual Defendants were provided with copies of the documents
alleged herein to be misleading prior to or shortly after their issuance and/or had the ability
and/or opportunity to prevent their issuance or cause them to be corrected. Accordingly, each of
the Individual Defendants are responsible for the accuracy of the public reports and releases
detailed herein and are therefore primarily liable for the representations contained in those
materials.
34. Each of the Individual Defendants are liable as a participant in a fraudulent
scheme and course of business that operated as a fraud or deceit on purchasers of NQ securities
by disseminating materially false and misleading statements and/or concealing material adverse
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facts. The scheme: (i) deceived the investing public regarding NQ’s business, operations,
management and the intrinsic value of its securities and (ii) caused Plaintiff and other
shareholders to purchase NQ securities at artificially inflated prices.
V. APPLICABILITY OF PRESUMPTION OF RELIANCE:FRAUD ON THE MARKET DOCTRINE
35. At all relevant times, the market for NQ’s securities was an efficient market for
the following reasons, among others:
(a) NQ’s securities met the requirements for listing, and were listed and
actively traded on the NYSE, a highly efficient market;
(b) During the Class Period, NQ’s securities were actively traded,
demonstrating a very strong presumption of an efficient market;
(c) As a regulated issuer, NQ filed with the SEC periodic public reports
during the Class Period;
(d) NQ regularly communicated with public investors via established market
communication mechanisms;
(e) NQ was followed by securities analysts employed by major brokerage
firms who wrote reports that were distributed to the sales force and certain customers of
brokerage firms during the Class Period. These analysts included, but were not necessarily
limited to: Canaccord-Genuity; Macquarie; Oppenheimer; Piper Jaffray; Topeka Capital
Markets; and Wedge Partners. Each of these reports was publicly available and entered the
public marketplace; and
(f) Unexpected material news about NQ was rapidly reflected in and
incorporated into the Company’s stock price during the Class Period.
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36. As a result of the foregoing, the market for NQ’s securities promptly digested
current information regarding NQ from all publicly available sources and reflected such
information in NQ’s securities price. Under these circumstances, all purchasers of NQ’s
securities during the Class Period suffered similar injury through their purchase of NQ’s
securities at artificially inflated prices, and a presumption of reliance applies.
VI. CLASS ACTION ALLEGATIONS
37. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and 23(b)(3) on behalf of all investors who purchased or otherwise acquired NQ
securities that trade on the NYSE between May 5, 2011 and October 24, 2013 inclusive,
including those investors who purchased NQ’s ADRs in its IPO commencing on May 5, 2011
pursuant to the Registration Statement and who were damaged thereby. Excluded from the Class
are Defendants, the officers and directors of the Company, members of their immediate families
and their legal representatives, heirs. successors or assigns and any entity in which Defendants
have or had a controlling interest.
38. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, NQ securities were actively traded on the NYSE.
While the exact number of Class members is unknown to Plaintiff at this time and can only be
ascertained through appropriate discovery, Plaintiff believes that there are hundreds or thousands
of members in the proposed Class. Record owners and other members of the Class may be
identified from records maintained by NQ or its transfer agent and may be notified of the
pendency of this action by mail, using the form of notice similar to that customarily used in
securities class actions.
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39. Plaintiffs claims are typical of the claims of the members of the Class, as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
40. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
41. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b) whether statements made by Defendants to the investing public during the
Class Period misrepresented material facts about the business, operations and management of
NQ; and
(c) to what extent the members of the Class have sustained damages and the
proper measure of those damages.
42. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
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VII. SUBSTANTIVE ALLEGATIONS
A. Substantive Allegations Under the Securities Act
43. On or about May 5, 2011. NQ (through the Underwriter Defendants) offered and
sold more than 7.75 million ADRs for SI 1.50 per share. for total proceeds of $89,125,000
pursuant to a firm commitment underwriting. The Underwriter Defendants purchased the shares
from the Company and sold that stock to Plaintiffs and the Class. The Registration Statement
contained materially untrue statements when made. Among other materially untrue statements,
the Registration Statement claimed that NQ: (i) held 67.7% of the mobile security market share
in China; (ii) held, as of the first quarter 2011, 3,670,000 average monthly paying user accounts;
and (iii) held, as of March 31, 2011, 85,970,000 cumulative registered user accounts in more
than 100 countries.
44. In addition, the Registration Statement contained the following materially untrue
statements:
11
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45. Moreover, the Registration Statement claimed that NQ had the following
“Competitive Strengths”, which were materially untrue when made:
• leading position in the mobile security and productivityservices market with a large and fast-growing global user base;
• diverse and flexible cloud-client based services portfolio withan innovative Freemium SaaS business model;
• proprietary technology and strong research and developmentcapabilities;
• diversified user acquisition and payment channels based on
strong relationships with key players in the mobile ecosystem;
• sophisticated and proprietary business and operation support
systems; and
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• visionary and experienced management team with proven trackrecord.
46. Lastly, the Registration Statement claimed that NQ had the following “Strategies
to achieve [its I goals”, which were also materially untrue when made:
• further expand and monetize our user base;
• further diversify and enhance our services portfolio:
• maintain and strengthen our technology leadership;
• strengthen and diversify collaborative relationships with keyplayers in the mobile ecosystem;
• further expand our presence in overseas markets; and
• establish a strong consumer brand among mobile Internetusers.
B. Substantive Allegations Under the Exchange Act
47. On June 1, 2011. the Company issued a press release, which was filed as a Form
6-F with the SEC on June 6, 2011. falsely announcing its purported first quarter 2011 financial
results. The press release was entitled “NetQin Mobile Inc. Announces First Quarter 2011
Results[,j Company Achieves Record Net Revenues and Profit for Ql[,] Issues Guidance for Q2
and FY 2011.” The press release falsely stated, in part, as follows:
NetQin Mobile Inc. (“NetQin” or the “Company”) (NYSE: NQ), a leadingprovider of consumer-centric mobile security and productivity applications, todayannounced its unaudited financial results for the first quarter ended March 31,2011.
First Quarter 2011 Highlights
• Net revenues increased 216.7% year-over-year to $7.6 millionfrom $2.4 million in the same period in 2010.
• Operating income increased to $1.5 million from a loss of $0.6million in the same period in 2010. Non-GAAP operatingincome, defined as operating income excluding share-based
14
compensation expenses, increased to $3.0 million from a lossof $0.2 million in the same period in 2010.
• Net income attributable to NetQin increased to $1.7 millionfrom a loss of $0.4 million in the same period in 2010. NonGAAP net income, defined as net income excluding share-based compensation expenses, increased to $3.1 million from$0.02 million in the same period in 2010.
• Net cash flow generated from operations was $2.0 million inthe first quarter of 201 1, compared with net cash outflow of$1.5 million in the same period in 2010. Cash and cashequivalents amounted to $24.5 million at the end of the firstquarter of 2011.
• Deferred revenue was $3.4 million at the end of the firstquarter of 2011, up 25.9% from $2.7 million at the end of thefourth quarter of 2010.
* * *
First Quarter 2011 Operating Metrics
• Cumulative registered user accounts were 86.0 million as ofMarch 31, 2011, compared with 42.9 million as of March 31,2010 and 72.0 million as of December 31, 2010.
• Average monthly active user accounts for the quarter endedMarch 31, 2011 were 30.3 million, compared with 14.8 millionfor the quarter ended March 31, 2010 and 25.4 million for thequarter ended December 31, 2010.
• Average monthly paying user accounts for the quarter endedMarch 31, 2011 were 3.7 million, compared with 1.4 millionfor the quarter ended March 31, 2010 and 3.3 million for thequarter ended December 31, 2010.
“We are very pleased to report our first quarterly results as a U.S.-listedcompany,” said Dr. Henry Lin, chairman and chief executive officer of NetQinMobile. “Our strong growth in the first quarter further validates our innovativefreemium SaaS business model. With the rapid growth in smartphone shipmentsglobally and the proliferation of mobile Internet applications, mobile securityrisks are on the rise and mobile security is quickly becoming a fundamental needfor smartphone users. NetQin is well positioned to seize this market opportunityand become the leading global mobile Internet service provider.”
“We saw strong growth momentum across all our security and productivityofferings during the first quarter as we reached new highs in our number of
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registered users, active users and paying users. We also launched the NQ Spacecloud services platform in the first quarter of 2011 and improved the functionalityand user experience of our product offerings. With our IPO on the New YorkStock Exchange last month, we have enhanced our market visibility and are noweven better positioned to grow our user base, establish new partnerships, developnew products and expand our business,” added Dr. Lin.
‘We will continue to deliver more free and premium product offerings to ourusers. Our focus on innovation, user experience and user needs will enable us toextend our market leadership during this exciting time for the mobile Internetindustry,’ Dr. Lin concluded.
* * *
Business Outlook
The Company expects net revenues to be in the range of $8.6 million and$8.8 million for the second quarter of 201 1, representing year-over-year growth of139% to 144% and quarter-over-quarter growth of 13% to 16%. For the full yearof 201 1, the Company expects net revenues to be in the range of $37.5 millionand $38.5 million, an increase of 112% to 118% compared to fiscal year 2010.The above forecast reflects the Company’s current and preliminary view, which issubject to possible material changes.
48. Then, on August 4, 2011, the Company issued a press release entitled “NetQin
Mobile Inc. Announces Second Quarter 2011 Results[,] Net Revenues Increased 147.4% Year-
over-Year Reaching New Record[,j Income from Operations Increased 241.7% Year-over
Year[,] Net Income Attributable to NetQin Increased 977.8% Year-over-Year”. The August 4,
2011 press release was attached to a Form 6-K filed with the SEC on August 9, 2011. The press
release falsely stated, in part, as follows:
NetQin Mobile Inc. ... today announced its unaudited financial results for thesecond quarter ended June 30, 2011.
Second Quarter 2011 Highlights
• Net revenues increased 147.4% year-over-year to $8.9 millionfrom $3.6 million in the corresponding period of 2010,exceeding the high end of the Company’s previous guidance.
• Income from operations, or operating income, increased24 1.7% year-over-year to $0.5 million from $0.14 million inthe corresponding period of 2010. Non-GAAP operating
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income, defined as operating income excluding share-basedcompensation expenses, increased 727.4% year-over-year to$3.7 million from $0.45 million in the corresponding period of2010.
• Net income attributable to NetQin increased 977.8% year-over-year to $1.1 million from $0.1 million in the correspondingperiod of 2010. Non-GAAP net income, defined as net incomeattributable to NetQin excluding share-based compensationexpenses, increased 954.7% year-over-year to $4.3 millionfrom $0.4 million in the corresponding period of 2010.
• Net cash flow generated from operations was $3.0 million inthe second quarter of 2011, compared with net cash outflow of$1.7 million in the corresponding period of 2010. Cash andcash equivalents amounted to $98.4 million as of June 30,2011.
• Deferred revenue was $4.6 million at the end of second quarterof 2011, up 35.6% from $3.4 million at the end of the firstquarter of 2011.
* * *
Second Quarter 2011 Operating Metrics
• Cumulative registered user accounts were 102.7 million as ofJune 30, 2011, compared with 50.2 million as of June 30, 2010and 86.0 million as of March 31, 2011.
• Average monthly active user accounts for the second quarterended June 30, 2011 were 36.4 million, compared with17.0 million for the corresponding period of 2010 and 30.3million for the first quarter ended March 3 1, 2011.
• Average monthly paying user accounts for the second quarterended June 30, 2011 were 4.2 million, compared with1.9 million for the corresponding period of 2010 and3.7 million for the first quarter ended March 31, 2011.
‘Our 2011 second quarter results exceeded our original guidance, reflecting ourrapid growth and further validating our freemium business model,” commentedDr. Henry Lin, chairman and chief executive officer of NetQin Mobile. “Wedelivered another solid quarter, building on the momentum of the Company’sIPO, and achieved record net revenues and non-GAAP profit.”
“Our IPO on the New York Stock Exchange in May raised our public profilesignificantly and has provided us with a great platform to expand our business
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globally. Our visibility, credibility and linancial strength as a NYSE-listedcompany have better positioned us to forge relationships with more leadingcompanies in the mobile ecosystem. For example, we recently formed strategicpartnerships with Telefonica and MediaTek to offer our mobile Internet servicesto their customers. These alliances position NetQin for more exciting growthopportunities globally and reflect the trust NetQin’s products and services haveearned across the industry.”
Our registered user accounts exceeded 100 million in the second quarter and thismilestone reflects the growing, worldwide demand for mobile security in the faceof new maiware threats to smartphone platforms. We also successfully launchedNetQin Mobile Security 5.0 for the Android and Symbian platforms whichresulted in a record number of active and paying user accounts in the secondquarter. Looking forward, we will continue to expand our product and serviceoffering in order to maintain our leadership position and execute on our globalgrowth strategy,” said Dr. Lin.
* * *
Business Outlook
The Company expects net revenues to be in the range of $10.1 million and$10.3 million for the third quarter of 2011, representing year-over-year growth of87%-90% and sequential growth of 14%-16%. The Company is raising its fullyear 2011 net revenue guidance from the previously issued range of $37.5 millionto $38.5 million to a range of $38.3 million to $38.8 million, representing yearover-year growth of 116%-li 9% from the previous year of 2010. The aboveforecast reflects the Company’s current and preliminary view, which is subject topossible material changes.
49. On November 3, 2011, NQ issued a materially false and misleading press release
entitled “NetQin Mobile Inc. Announces Third Quarter 2011 Results[,] Net Revenues Hit Record
High, Increasing 109.7% Year-over-Year[,] Income from Operations Increases 67.8% Year
over-Year[,] Net Income Attributable to NetQin Increases 343.5% Year-over-Year[,] Company
Raises Full Year 2011 Guidance to Range of $40.2 million to $40.5 million”. The press release
was attached to a Form 6-K that was filed with the SEC on November 4, 2011. More
specifically, the press release falsely stated, in part, that:
ietQin Mobile Inc. ... today announced its unaudited financial results for thethird quarter ended September 30, 2011.
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Third Quarter 2011 Highlights
• Net revenues increased 109.7% year-over-year to $11 .3 millionfrom $5.4 million in the corresponding period of 2010,exceeding the high end of the Company’s previous guidance of$10.1 million to $10.3 million disclosed in the second quarter2011 results announcement.
• Income from operations, or operating income, increased 67.8%year-over-year to $2.1 million from $1.2 million for thecorresponding period of 2010. Non-GAAP operating income,defined as operating income excluding share-basedcompensation expenses, increased 146.6% year-over-year to$4.7 million from $1.9 million for the corresponding period of2010.
• Net income attributable to NetQin increased 343.5% year-over-year to $4.3 million from $1.0 million for the correspondingperiod of 2010. Non-GAAP net income, defined as net incomeattributable to NetQin excluding share-based compensationexpenses, increased 320.2% year-over-year to $7.0 millionfrom $1.7 million for the corresponding period of 2010.
• Net cash flow generated from operations was $2.6 million inthe third quarter of 2011, compared with net cash outflows of$0.8 million for the corresponding period of 2010. Cash andcash equivalents and term deposits together amounted to$121.5 million as of September 30, 2011.
• Deferred revenue was $6.0 million at the end of the thirdquarter of 2011, up 3 1.1% from $4.6 million at the end of thesecond quarter of 2011.
* * *
Third Quarter 2011 Operating Metrics
• Cumulative registered user accounts were 122.8 million as ofSeptember 30, 2011, compared with 60.1 million as ofSeptember 30, 2010 and 102.7 million as of June 30, 2011.
• Average monthly active user accounts for the third quarterended September 30, 2011 were 42.7 million, compared with21.0 million for the corresponding period of 2010 and 36.4million for the second quarter ended June 30, 2011.
• Average monthly paying user accounts for the third quarterended September 30, 2011 were 5.0 million, compared with
19
2.8 million for the corresponding period of 2010 and4.2 million for the second quarter ended June 30, 2011.
“I am very pleased to report that we achieved another strong quarter, deliveringrecord revenue and beating the high end of our guidance,” commented Dr. HenryLin, chairman and chief executive officer of NetQin. “Even in the face of globaleconomic uncertainty, our business and user growth have not experienced anyslowdown, in fact our business momentum remains as strong as ever. Wecontinue to benefit from the rapid growth in global smartphone shipments and theproliferation of mobile Internet applications. Smartphone users have becomeincreasingly aware of the severity of mobile security risks and are implementingmobile security solutions in response. NetQin is well positioned to seize thisglobal market opportunity.”
“Aside from our impressive third quarter results, the past few months also markeda number of notable business development and operational achievements. Mostrecently, we were favorably evaluated by West Coast Labs, which determinedthrough rigorous testing that NetQin has the best mobile security solutionavailable and we further expanded our research capability by establishing aSecurity Research Center in Raleigh, North Carolina. On product development, inaddition to regularly updating our existing products, we launched a new smartcalendar product named NiceDay to add to our product lineup on the iPhone andAndroid platforms. In the past quarter we also recruited industry veterans tospearhead our expansion into the Americas and Europe. And we saw continuedmarket traction through our new partnerships with Brightstar and TaiwanMobile,” added Dr. Lin.
“We have achieved two consecutive record quarters following our IPO inMay 2011 and we are confident that we will continue to deliver strong operationaland financial results given our solid business fundamentals and promising growthprospects. We look forward to bringing more exciting news and progress to ourshareholders when we report our fourth quarter and full-year 2011 results nextyear,” Dr. Lin concluded.
* * *
Business Outlook
The Company expects net revenues to be in the range of $12.4 million to$12.7 million for the fourth quarter of 2011, representing year-over-year growthof 97% to 102% and sequential growth of 10% to 12%. Accordingly, this raisesthe full-year 2011 net revenue guidance from the previously issued range of$38.3 million to $38.8 million to a range of $40.2 million to $40.5 million,representing year-over-year growth of 127% to 129% from the previous year of2010. The above forecast reflects the Company’s current and preliminary view,which is subject to possible material changes.
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50. On March 5, 2012, the Company issued a materially false and misleading press
release announcing its Iburth quarter 2011 and full year 2011 financial results. The press release
was attached to a Form 6-K filed with the SEC on March 6, 2012. The press release falsely
states, in part, as follows:
NetQin Mobile Inc. ... today announced its unaudited financial results for thefourth quarter and fiscal year ended December 3 1, 2011.
Fourth Quarter 2011 Highlights
Net revenues increased 104.8% year-over-year to $12.8 million from $6.3 millionin the corresponding period of 2010, exceeding the high end of the Company’sprevious guidance of$12.4 to $12.7 million.
Income from operations, or operating income, increased to $1.5 million from aloss of $10.4 million in the corresponding period of 2010.
Non-GAAP operating income, defined as operating income excluding share-basedcompensation expenses, increased 570.9% year-over-year to $4.8 million from$0.7 million in the corresponding period of 2010.
Net income attributable to NetQin increased to $3.2 million from a loss of $10.5million in the corresponding period of 2010.
Non-GAAP net income attributable to NetQin, defined as net income attributableto NetQin excluding share-based compensation expenses, increased 917.6% year-over-year to $6.5 million from $0.6 million in the corresponding period of 2010.
Net cash flow generated from operations was $4.2 million in the fourth quarter of2011, compared with $0.3 million in the corresponding period of 2010. Cash andcash equivalents and term deposits together amounted to $128.1 million as ofDecember 31, 2011.
Deferred revenue was $7.1 million at the end of the fourth quarter of 2011, up17.7% from $6.0 million at the end of the third quarter of 2011.
Fiscal Year 2011 Highlights
Net revenues for fiscal year 2011 increased 129.8% year-over-year to $40.7million from $17.7 million in 2010, exceeding the high end of the Company’sprevious guidance.
Income from operations, or operating income, for fiscal year 2011, increased to$5.5 million from a loss of $9.6 million in 2010.
21
Non-GAAP operating income for fiscal year 201 1, increased 454.6% year-over-year to $16.2 million from $2.9 million in 2010.
Net income attributable to NetQin for fiscal year 201 1, increased to $10.3 millionfrom a loss of $9.8 million in 2010.
Non-GAAP net income attributable to NetQin for fiscal year 2011, increased663.9% year-over-year to $20.9 million from $2.7 million in 2010.
Net cash flow generated from operations, for fiscal year 2011, was $11.8 million,compared with net cash outflow of $3.8 million in 2010.
The Company’s non-GAAP financial measures and related reconciliations toGAAP financial measures are described in the accompanying sections of “NonGAAP Financial Measures” and “Non-GAAP Measure Reconciliations”.
Fourth Quarter and Fiscal Year 2011 Operating Metrics
Cumulative registered user accounts were 146.7 million as of December 31, 2011,compared with 71.7 million as of December 31, 2010 and 122.8 million as ofSeptember 30, 2011.
Average monthly active user accounts for the quarter ended December 31, 2011were 52.3 million, compared with 25.4 million for the corresponding period of2010 and 42.7 million for the quarter ended September 30, 2011.
Average monthly paying user accounts for the quarter ended December 31, 2011were 5.6 million, compared with 3.2 million for the corresponding period of 2010and 5.0 million for the quarter ended September 30, 2011.
“We are very pleased to report a strong fourth quarter and to finish year 2011 on ahigh note exceeding our previously issued guidance,” commented Dr. Henry Lin,chairman and co-chief executive officer of NetQin Mobile. “In our first year as apublic company, we have achieved excellent growth and delivered threeconsecutive solid quarters following our IPO in May 2011.
“In 2011, NetQin Mobile set a number of new records in financial and operatingmetrics. Both our net revenues and registered user base reached record highs,more than doubling from the previous year. This success is driven by a number offactors including our relentless focus on product and technology innovation, aswell as user experience. We also continued our expansion of industry partnershipsand user acquisition channels. The rapid growth of global smartphone shipmentsand the proliferation of mobile Internet applications, as well as increasingconsumer awareness and adoption of mobile security helped assure our success,”continued Dr. Lin.
“While maintaining our dominant market share in China, we have also seen ourinternationalization strategy take off in 2011, with now almost half of our net
22
revenues coming from overseas. This underscores the global demand for mobilesecurity and privacy protection. With the recent joining of Omar Khan as our CoCEO, we will continue to expand and grow our international businessaggressively, signing up new industry partners and making key hires in overseasmarkets.”
‘We believe the growth of the smartphone and mobile Internet industry presentsus with an unprecedented global market opportunity. 2012 is shaping up to beanother exciting year for NetQin Mobile during which we will continue to expandour service offerings and extend our geographic outreach,” said Khan. “Withrecently announced agreements with Motorola, Telefonica, 3LM and eSecuritel,we already had a great start in 2012 and I am also pleased to report that CricketCommunications, a leading provider of wireless services that serves six millioncustomers in 35 states, has just selected NetQin as the preferred security solutionprovider for its Android devices. We remain confident that we will continue ourgrowth momentum in 2012 and capitalize on these global opportunities.”
* * *
Business Outlook
The Company expects net revenues to be in the range of $14.5 million and $15.0million for the first quarter of 2012, representing year-over-year growth of 90.8%-97.4% and sequential growth of 13.3%-17.2%. For fiscal year 2012, the Companyexpects net revenues to be in the range of $70 million and $72 million, an increaseof 70.7% to 75.6% compared to fiscal year 2011. The above forecast reflects theCompany’s current and preliminary view, which is subject to possible materialchanges.
51. On March 30, 2012, NQ filed a Form 20-F with the SEC reporting the same
materially false and misleading fourth quarter 2011 and fiscal year 2011 results discussed above.
In addition, the Form 20-F contained the following false and misleading statements regarding the
Company’s internal controls:
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officers and chieffinancial officer, has performed an evaluation of the effectiveness of ourdisclosure controls and procedures ... as of the end of the period covered by thisreport, as required by Rule 13a-15(b) under the Exchange Act. Based on thatevaluation, our management has concluded that, as of December 31, 2011, ourdisclosure controls and procedures were not effective for the reasons set forth in“Internal Control over Financial Reporting” below.
23
Management’s Annual Report on Internal Control over Financial Reporting
This annual report does not include a report of management’s assessmentregarding internal control over financial reporting or an attestation report of ourcompany’s registered public accounting firm due to a transition period establishedby rules of the SEC for newly public companies.
Internal Control over Financial Reporting
Prior to our initial public offering in May 2011, we were a private company withlimited accounting personnel with U.S. GAAP experience and other resourceswith which to adequately address our internal control over our financial closingand reporting process and other procedures. Our independent registered publicaccounting firm has not conducted an audit of our internal control over financialreporting. However, in connection with the audit of our consolidated financialstatements for the year ended December 31, 2011, our independent registeredpublic accounting firm identified one material weakness in our internal controlover financial closing and reporting process, which was related to us not having asufficient number of professionals in our financial accounting and reporting groupwith the requisite knowledge of U.S. GAAP and SEC reporting requirements.
We have undertaken certain remedial steps to address the material weakness,including hiring additional professionals with experience in US. GAAP and SECreporting from reputable accounting firms, training our new and existingaccounting staffand setting up new internal audit department. We are also settingup an internal control process to timely assess new releases of US. GAAP andSEC regulations. However, the implementation of these measures may not fullyaddress the material weakness in our internal control over financial reporting, andwe plan to continue to address and remediate in our internal control over financialreporting in time to meet the deadline for compliance with the requirements ofSection 404 of the Sarbanes-Oxley Act. Under the supervision and with theparticipation of our senior management, including our executive chairman, chiefexecutive officers and our chief financial officer, we are forming a taskforce ledby senior management members in pursuing compliance with the requirements ofSarbanes..Oxley Act and are continuing to undertake measures to improve ourinternal control over financial reporting. These measures include but are notlimited to continuously strengthening our accounting resources, improving ourfinancial closing and reporting process and procedures, and developing andstrengthening our internal audit function.
As we are still in the evaluation process, we may identify additional controldeficiencies in the future. Should we discover such conditions, we intend toremediate them as soon as practicable. We are committed to taking appropriatestepsfor remediation, as needed. (Emphasis added).
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46. The Company’s N arch 30, 2012 Form 20-F contained as attachment 12.1. the
Ibliowing false and misleading certifications by Defendants Lin and Khan, wherein the Co-CEOs
falsely stated:
Certification by the Principal Executive Officers Pursuant to Section 302 of the SarbanesOxley Act of 2002
I, Henry Yu Lin. and I, Omar Khan, each certify that:
I. I have reviewed this annual report on Form 20-F of NetQin Mobile Inc.;
2. Based on my knowledge, this report does not contain any untruestatement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under whichsuch statements were made, not misleading with respect to the periodcovered by this report;
3. Based on my knowledge, the financial statements, and other financialinformation included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of thecompany as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:
(a) Designed such disclosure controls and procedures, or causedsuch disclosure controls and procedures to be designed underour supervision, to ensure that material information relating tothe company, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly duringthe period in which this report is being prepared;
(b) [intentionally omittedi;
(c) Evaluated the effectiveness of the company’s disclosurecontrols and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controlsand procedures, as of the end of the period covered by thisreport based on such evaluation; and
(d) Disclosed in this report any change in the company’s internalcontrol over financial reporting that occurred during the periodcovered by this annual report that has materially affected, or is
25
reasonably likely to materially affect, the company’s internalcontrol over financial reporting; and
The company’s other certifying officer(s) and I have disclosed, based onour most recent evaluation of internal control over financial reporting, tothe company’s auditors and the audit committee of the company’s boardof directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in thedesign or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the company’sability to record, process, summarize and report financialinformation; and
(b) Any fraud, whether or not material, that involves managementor other employees who have a significant role in thecompany’s internal control over financial reporting.
47. The Company’s March 30, 2012 Form 20-F also contained as attachment 13.1,
the following false and misleading certifications by Defendants Lin and Khan, wherein the Co
CEOs falsely stated:
Certification by the Principal Executive OfficersPursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of NetQin Mobile Inc. (the “Company”) onForm 20-F for the year ended December 31, 2011 as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Henry Yu Lin,Chairman and Co-Chief Executive Officer of the Company, and I, Omar Khan,Co-Chief Executive Officer of the Company, hereby certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in allmaterial respects, the financial condition and results ofoperations of the Company.
48. The Company’s March 30, 2012 20-F also contained, attached to the filing as
Exhibit 12.2, SOX certifications executed by Defendant Ji. These certifications were
substantially similar to the SOX certifications quoted above.
26
49. On May 7, 2012, the Company issued a materially false and misleading press
release announcing its first quarter 2012 financial results. The press release was filed with the
SEC as an attachment to a Form 6-K on May 8,2013. The release stated, in part, as follows:
NQ Mobile Inc. ... today announced its unaudited financial results for the firstquarter ended March 31, 2012.
First Quarter 2012 Highlights
• Net revenues increased 109.6% year-over-year to $16.0 millionfrom $7.6 million in the corresponding period of 2011,exceeding the high end of the Company’s previous guidance of$14.5 million to $15.0 million.
• Income from operations, or operating income, decreased 13.2%year-over-year to $1.3 million from $1.5 million in thecorresponding period of 2011.
• Non-GAAP operating income, defined as operating incomeexcluding share-based compensation expenses, increased87.6% year-over-year to $5.6 million from $3.0 million in thecorresponding period of 2011.
• Net income attributable to NQ Mobile increased 28.5% year-over-year to $2.1 million from $1.7 million in thecorresponding period of 2011.
• Non-GAAP net income, defined as net income attributable toNQ Mobile excluding share-based compensation expenses,increased 106.2% year-over-year to $6.4 million from $3.1million in the corresponding period of 2011.
• Net cash flow generated from operations was $6.8 million inthe first quarter of 2012, compared with $2.0 million in thecorresponding period of 2011. Cash and cash equivalents andterm deposits together amounted to $131.0 million as ofMarch 31, 2012.
• Deferred revenue was $8.3 million at the end of first quarter of2012, up 17.3% from $7.1 million at the end of the fourthquarter of 201 1.
* * *
27
First Quarter 2012 Operating Metrics
• Cumulative registered user accounts were 172.0 million as ofMarch 31, 2012, compared with 86.0 million as of March 31,2011 and 146.7 million as of December 31, 2011.
• Average monthly active user accounts for the quarter endedMarch 31, 2012 were 60.1 million, compared with 30.3 millionfbr the corresponding period of 2011 and 52.3 million for theprevious quarter ended December 31, 2011.
• Average monthly paying user accounts for the quarter endedMarch 31, 2012 were 6.5 million, compared with 3.7 millionfor the corresponding period of 2011 and 5.6 million for theprevious quarter ended December 31, 2011.
“I am very pleased to report that we started 2012 with another strong quarter. Weagain achieved record revenues and exceeded the high end of the previouslyissued guidance, for the fourth consecutive quarter since our IPO in May 2011 ,“
said Dr. Henry Lin, Chairman and Co-Chief Executive Officer of NQ Mobile. “Inparticular, we have made significant progress in building a global managementteam and accelerating our international expansion. I was joined by Omar Khan asCo-CEO in the first quarter and together we are directing NQ Mobile towardsbeing a truly global company. Omar’s efforts already began to yield results as wehave formed new industry partnerships, made additional key hires and furtherenhanced our product roadmap and strategies. More recently, we have started toexpand into the enterprise market by leveraging our technology and success inconsumer mobile security. We believe NQ mobile is well positioned to capturethe exciting mobile Internet growth opportunities in both consumer and enterprisemarkets globally.”
“In the first quarter we announced several key international business developmentinitiatives,” added Omar Khan, Co-Chief Executive Officer of NQ Mobile. “Wehave announced agreements with Telefonica, Cricket Communication, 3LM,eSecuritel and most recently, The Cellular Connection (“TCC”), which is thelargest Verizon premium wireless retailer in the US. More importantly, we alsohave had great success in attracting top industry talent and building a world-classteam. Our recent hires included Gavin Kim, formerly General Manager of theWindows Phone Product Marketing at Microsoft, as our Chief Product Officer,and Conrad Edwards, formerly of Samsung Mobile, as our Chief ExperienceOfficer and General Manager of International Marketing. We are confident thatthose new additions will equip NQ Mobile with the right talent and resources toexecute our global expansion strategies.”
* * *
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Business Outlook
The Company expects net revenues to be in the range of $17.5 million and $17.8million lbr the second quarter of 2012, representing year-over-year growth of97.2%-l00.6% and sequential growth of 9.5%-I 1.4%. For fiscal year 2012, theCompany raises the guidance from the previously issued range of $70 million to$72 million to a range of $73 million to $75 million, representing year-over-yeargrowth of 79.5%-84.4% from the previous year of 2011. The above forecastreflects the Company’s current and preliminary view, which is subject to possiblematerial changes.
so. On August 8, 2012, NQ issued a materially false and misleading press release
announcing its second quarter 2012 financial results and filed the press release as an attachment
to a Form 6-K filed with the SEC. The press release stated, in relevant part, as follows
(footnotes omitted):
NQ Mobile Inc. ... today announced its unaudited financial results for the secondquarter ended June 30, 2012.
Second Quarter 2012 Highlights
• Net revenues increased 125.0% year-over-year to $20.0 millionfrom $8.9 million in the corresponding period of 2011.Excluding revenue contribution of $1.4 million from therecently acquired Beijing NationSky Network Technology, Inc.(“NationSky”), net revenues increased 109.1% year-over-yearto $18.6 million, exceeding the high end of the Company’sprevious guidance of $17.5 million to $17.8 million.
• Income from operations, or operating income, increased2 16.4% year-over-year to $1.5 million from $0.5 million in thecorresponding period of 2011. Non-GAAP operating income,increased 77.5% year-over-year to $6.5 million from $3.7million in the corresponding period of 2011. Excludingoperating income contribution of $0.15 million fromNationSky, operating income and Non-GAAP operatingincome increased 185.5% and 73.5% year-over-year to $1.4million and $6.4 million, respectively.
• Net income attributable to NQ Mobile increased 95.1% yearover-year to $2.1 million from $1.1 million in thecorresponding period of 2011. Non-GAAP net incomeincreased 66.4% year-over-year to $7.1 million from $4.3million in the corresponding period of 2011. Net income
29
contribution from NationSky only amounted to $0.05 millionin the second quarter.
• GAAP frilly diluted Earnings per ADS was $0.042 and nonGAAP [lilly diluted Earnings per ADS was $0.l42. Dilutedweighted average number of ADSs outstanding increased to50.1 million in the second quarter of 2012 from 48.6 million inthe previous quarter.
• Net cash flow generated from operations was $1.9 million inthe second quarter of 2012, compared with $3.0 million in thecorresponding period of 2011. Cash and cash equivalents andterm deposits together amounted to $128.6 million as ofJune 30, 2012.
• Deferredrevenue was $9.5 million at the end of second quarterof 2012, up 13.9% from $8.3 million at the end of the firstquarter of 2012.
• On May 11, 2012, the Company completed the acquisition of55% equity interest of NationSky, a leading provider of mobileservices to enterprises in China. NationSky’s financialstatements were consolidated in the Company’s financialstatements starting from June 1, 2012.
* * *
Second Quarter 2012 Operating Metrics
• Cumulative registered user accounts were 203.5 million as ofJune 30, 2012, compared with 102.7 million as of June 30,2011 and 172.0 million as of March 31, 2012.
• Average monthly active user accounts for the second quarterended June 30, 2012 were 69.2 million, compared with36.4 million for the corresponding period of 2011 and60.1 million for the previous quarter ended March 31, 2012.
• Average monthly paying user accounts for the second quarterended June 30, 2012 were 7.4 million, compared with4.2 million for the corresponding period of 2011 and6.5 million for the previous quarter ended March 31, 2012.
am pleased to report that we delivered another solid quarter with recordrevenue again exceeding the high end of the previously issued guidance. Weachieved another milestone in our business as our registered user accountssurpassed the 200 million mark in the second quarter, nearly doubling from a yearago,” said Dr. Henry Lin, Chairman and Co-Chief Executive Officer of NQ
Mobile. ‘The strong growth in our user base is clear evidence of the consumeracceptance of our products and services as well as the effectiveness of our useracquisition elThrts.”
“In the second quarter, we continued to grow our consumer business by launchinginnovative products and also expanded into enterprise business by completing theacquisition of NationSky and forging collaborations with industry leaders such asTD Mobility,” added Omar Khan, Co-Chief Executive Officer of NQ Mobile.“Our newest consumer product, NQ Mobile Vault, has already won severalawards and accolades and is gaining strong user traction. And we continue to seetremendous momentum in our business development pipeline and expect ourbusiness in certain key markets such as North America and Latin America to hitan inflection point in 2013 and begin to contribute significant growth in revenues.We will continue to invest in our international business and build the necessaryinfrastructure in place to position us for long term growth.”
* * *
Business Outlook
The Company expects net revenues to be in the range of $24 million and $25million for the third quarter of 2012 and raises the full year 2012 net revenueguidance from the previously issued range of $73 million to $75 million to arange of $86 million to $89 million.
The above forecast reflects the Company’s current and preliminary view, which issubject to possible material changes.
51. On November 12, 2012, the Company issued a false and misleading press release
announcing its third quarter 2012 financial results. The press release was attached to a Form 6-K
filed with the SEC on November 13, 2012. The press release stated, in relevant part, as follows
(footnotes omitted):
NQ Mobile Inc. (“NQ Mobile” or the “Company”) (NYSE: NQ) ... todayannounced its unaudited financial results for the third quarter endedSeptember 30, 2012.
Third Quarter 2012 Highlights
• Net revenues increased 127.4% year-over-year to $25.8 millionfrom $11.3 million in the corresponding period of 2011,exceeding the high end of the Company’s previous guidance of$24 million to $25 million. Excluding revenue contribution of$4.5 million from the recently acquired Beijing NationSky
31
Network Technology, Inc. (“NationSky”), net revenuesincreased 88.0% year-over-year to $21.3 million.
• Loss from operations was $1.0 million, mainly due to $7.8million in share-based compensation expense in the thirdquarter of 2012, compared with an operating income of $2.1million in the corresponding period of 2011. Non-GAAPoperating income4, increased 44.4% year-over-year to $6.8million from $4.7 million in the corresponding period of 2011.Excluding operating income contribution of $0.5 million fromNationSky, Non-GAAP operating income increased 34.6%year-over-year to $6.3 million.
• Net income attributable to NQ Mobile was $0.3 million,compared with net income of $4.3 million in the correspondingperiod of 2011. Non-GAAP net income5 increased 16.2% yearover-year to $8.1 million from $7.0 million in thecorresponding period of 2011. Net income contribution fromNationSky amounted to $0.2 million in the third quarter.
• GAAP fully diluted Earnings per ADS was $0.01 and nonGAAP fully diluted Earnings per ADS was $0.16. Dilutedweighted average number of ADSs outstanding increased to51.2 million in the third quarter of 2012 from 50.1 million inthe previous quarter.
• Net cash flow generated from operations was $6.9 million inthe third quarter of 2012, compared with $2.6 million in thecorresponding period of 2011. Cash and cash equivalents andterm deposits together amounted to $126.2 million as ofSeptember 30, 2012.
• Deferred revenue was $10.9 million at the end of the thirdquarter of 2012, up 14.7% from $9.5 million at the end of thesecond quarter of 2012.
* * *
Third Quarter 2012 Operating Metrics
• Cumulative registered user accounts were 241.6 million as ofSeptember 30, 2012, compared with 122.8 million as ofSeptember 30, 2011 and 203.5 million as of June 30, 2012.
• Average monthly active user accounts for the third quarterended September 30, 2012 were 84.5 million, compared with42.7 million for the corresponding period of 2011 and69.2 million for the previous quarter ended June 30, 2012.
32
• Average monthly paying user accounts for the third quarterended September 30, 2012 were 8.2 million, compared with5.0 million for the corresponding period of 2011 and7.4 million for the previous quarter ended June 30, 2012.
* * *
“I am pleased to report that we again achieved a strong quarter with revenuegrowth exceeding the high end of the previously issued guidance. Both ourregistered and active user base recorded the highest sequential growth for 2012,reaching 242 million and 85 million, respectively. Additionally, we are starting tosee significant revenue contribution from the NationSky acquisition for ourenterprise business,” commented Dr. Henry Lin, Chairman and Co-ChiefExecutive Officer of NQ Mobile. “While we continue to see strong growth in theglobal mobile security market, we also undertook an important strategic step inbroadening our mobile Internet service offerings through the acquisition of Feiliu,to further transform NQ Mobile to become a leading mobile Internet platform andservices company.”
“In the third quarter, we continued our product expansion and were excited tobring more innovative products to the global market such as NQ FamilyGuardian,” added Omar Khan, Co-Chief Executive Officer of NQ Mobile. “Withthe formal opening of our new international corporate headquarters in Dallas, weremain committed to our global expansion efforts and continue to see strongmomentum in international business development with newly announcedagreements with Go Wireless, Wireless and Cat® Phones in the United States,Celcom in Malaysia, epay in Australia and Phones4you in the United Kingdom.Revenue from international markets today already accounts for more than 54% ofour consumer business and we believe that the continued build out and investmentin our international business will further drive and sustain NQ Mobile’s long termgrowth.”
* * *
Business Outlook
The Company expects net revenues to be in the range of $28.5 million and $29.5million for the fourth quarter of 2012 and raises the full year 2012 net revenueguidance from the previously issued range of $86 million to $89 million to arange of $90 million to $91 million. The Company also initiates its revenueguidance for 2013 to be in the range of$150 million and 155 million.
The above forecast reflects the Company’s current and preliminary view, which issubject to possible material changes.
52. On December 10, 2012, the website Seeking Alpha published an anonymously
authored article alleging serious misconduct at NQ. While the Company’s stock price initially
33
fell on news of the Seeking Alpha report, NQ quickly denied the allegations, stating flatly that
“NQ Mobile strongly rejects these allegations and notes that [thel commentary contains
numerous inaccuracies and misleading speculations based on flawed arguments and illustrates a
lack of understanding of the Company’s business model.” Based on this adamant denial, which
itself was materially false and misleading, the Company’s stock price quickly rebounded.
53. On March 6, 2013, the Company issued a materially false and misleading press
release announcing its fourth quarter 2012 and full year 2012 financial results. The press release
was also filed with the SEC as an attachment to a Form 6-K on March 8, 2013. The press release
stated, in pertinent part, as follows:
NQ Mobile Inc. ... today announced its unaudited financial results for the fourthquarter and fiscal year ended December 31, 2012.
Fourth Quarter 2012 Highlights
• Net revenues increased 134.1% year-over-year to $30.0million.
• Net income attributable to NQ Mobile increased 52.7% yearover-year to $4.9 million.
• Non-GAAP net income attributable to NQ Mobile, defined asnet income attributable to NQ Mobile excluding share-basedcompensation expenses, increased 88.4% year-over-year to$12.3 million.
• GAAP fully diluted Earnings per ADS was $0.09 and nonGAAP fully diluted Earnings per ADS was $0.23 for the fourthquarter of 2012. Diluted weighted average number of ADSsoutstanding increased to 53.5 million in the fourth quarter of2012 from 51.2 million in the previous quarter.
• On November 30, 2012, the Company completed theacquisition of the remaining 73.6% equity interest in BeijingFeiliu Jutian Technology Co. (“Feiliu”). Feiliu’s financialswere consolidated in the Company’s financial statementsstarting on December 1, 2012.
34
Fiscal Year 2012 Highlights
• Net revenues for fiscal year 2012 increased 125.6% year-over-year to $91.8 million.
• Net income attributable to NQ Mobile for fiscal year 2012,decreased 8.0% year-over-year to $9.4 million, mainly due tothe $24.5 million in share-based compensation expensesrecorded in the fiscal year of 2012. compared with $10.7million in 2011.
• Non-GAAP net income attributable to NQ Mobile lbr fiscalyear 2012, increased 62.4% year-over-year to $34.0 million.
• GAAP fully diluted Earnings per ADS was $0.18 and nonGAAP fully diluted Earnings per ADS was $0.66 for the fiscalyear 2012. Diluted weighted average number of ADSsoutstanding increased to 51.1 million in the fiscal year 2012from 38.7 million in 2011.
* * *
Fourth Quarter and Fiscal Year 2012 Operating Metrics
• Cumulative registered user accounts were 283.4 million as ofDecember 31, 2012, compared with 146.7 million as ofDecember31, 2011 and 241.6million as of September30,2012. Including Feiliu’s 67.4 million registered user accounts,NQ Mobile had total registered user accounts of 350.8 millionas of December 31, 2012.
• Average monthly active user accounts for the quarter endedDecember 31, 2012 were 97.7 million, compared with52.4 million for the corresponding period of 2011 and84.5 million for the quarter ended September 30, 2012.Including Feiliu’s 12.5 million average monthly active useraccounts, NQ Mobile had total average monthly active useraccounts of 110.2 million for the quarter ended December 31,2012.
• Average monthly paying user accounts for the quarter endedDecember 31, 2012 were 8.9 million, compared with5.6 million for the corresponding period of 2011 and8.2 million for the quarter ended September 30, 2012.
• Beijing NationSky Network Technology, Inc. (“NationSky”)had over 1,200 enterprise customers as of December 31, 2012.
35
* * *
‘We are very pleased to report a strong fourth quarter and an excellent 2012 fiscalyear performance with record revenues,” commented Dr. Henry Lin, Chairmanand Co-Chief Executive Officer of NQ Mobile. “In our first full year as a publiccompany, we grew our revenue by 126% from $41 million to over $92 million.Even without taking into account the revenue contribution from the NationSkyand Feiliu acquisitions, we achieved revenue of $79 million for 2012 and anoutstanding organic growth rate of 93%. This significant growth is driven by ourconsistent execution, as well as the continued rapid growth of the globalsmartphone industry and adoption of mobile security and privacy solutions byconsumers worldwide.”
“This past year also marked an important strategic year in the evolution of NQMobile as we broadened from a pure mobile security company to a mobileInternet platform company. Through the acquisitions of NationSky and Feiliu, wegreatly expanded our product and service offerings, extended our customer base,and diversified our revenue streams. We are well positioned to capitalize on thesignificant size and growth of the mobile Internet services market for bothconsumers and enterprises. Through continuous technology innovation andexpansion of products and services, we have set in motion our plan to become anintegrated part of our users’ daily mobile experiences,” continued Dr. Lin.
“Another key theme for NQ Mobile in 2012 was the continued global expansionof our business while maintaining our leadership position in China,” added OmarKhan, Co-Chief Executive Officer of NQ Mobile. “We have made tremendousachievements in building a top tier global team, establishing our internationalcorporate headquarters in Dallas, broadening our service offerings and gainingsignificant traction with global consumers and business partners alike. There is nobetter evidence of that than our latest announcement with America Movil to offerthe entire suite of our flagship consumer security and privacy offerings: NQMobile SecurityTM, NQ Mobile VaultTM and NQ Family GuardianTM to its262 million subscribers across 18 countries. We are confident that the strongmomentum in our international business will continue in 2013. We remaincommitted to our global expansion effort to drive the long term growth for our
company.”
* * *
Business Outlook
The Company expects net revenues to be in the range of $32.8 million and $33.3million for the first quarter of 2013 and raises the full year 2013 net revenueguidance from the previously issued range of $150 million to $155 million to arange of $178 million to 183 million.
The above forecast reflects the Company’s current and preliminary view, which issubject to possible material changes.
36
54. ‘[hereafter, on April 19. 2013, NQ filed a Form 20-F with the SEC repeating its
false and misleading financial results discussed above. In addition, the Form 20-F also attached
SOX certifications executed by Defendants Lin, Khan and Ji substantially similar to the
certifications referenced above.
55. On May 15, 2013, the Company issued a materially false and misleading press
release entitled “NQ Mobile Inc. Announces First Quarter 2013 Results”. The press release was
filed with the SEC as an attachment to a Form 6-K on May 20, 2013. The press release stated, in
part, as follows (Ibotnotes omitted):
NQ Mobile Inc. ... today announced its unaudited financial results for the firstquarter ended March 3 1, 2013.
First Quarter 2013 Highlights
• Net revenues increased 108.0% year-over-year to $33.2million.
• Income from operations, or operating income, increased 74.5%year-over-year to $2.3 million.
• Non-GAAP operating income increased 77.9% year-over-yearto $10.0 million.
• Net income attributable to NQ Mobile increased 34.2% yearover-year to $2.9 million.
• GAAP fully diluted Earnings per ADS was $0.05 and nonGAAP fully diluted Earnings per ADS was $0.19. Dilutedweighted average number of ADSs outstanding increased to56.4 million in the first quarter of 2013 from 53.5 million in theprevious quarter.
• Net cash flow generated from operations was $4.4 million inthe first quarter of 2013, compared with $6.8 million in thecorresponding period of 2012. Cash and cash equivalents andterm deposits together amounted to $121.9 million as ofMarch 31, 2013.
37
• Deferred revenue was $14.4 million at the end of first quarterof 2013, up 18.0% from $12.2 million at the end of the fourthquarter of 2012.
* * *
First Quarter 2013 Operating Metrics
• Cumulative registered user accounts were 326.6 million as ofMarch 31, 2013, compared with 172.0 million as of March 31,2012 and 283.4 million as of December 31, 2012. Including76.9 million registered user accounts for Beijing Feiliu JiutianTechnology Co., Ltd (“Feiliu”), NQ Mobile had total registereduser accounts of 403.5 million as of March 31, 2013.
• Average monthly active user accounts for the quarter endedMarch 31, 2013 were 111.1 million, compared with60.1 million for the corresponding period of 2012 and97.7 million for the quarter ended December 31, 2012.Including Feiliu’s 13.7 million average monthly active useraccounts, NQ Mobile had total average monthly active useraccounts of 124.8 million for the quarter ended March 31,2013.
• Feiliu operated and distributed a total of 14 games on iOS and36 games on Android platforms as of March 31, 2013. In thefirst quarter of 2013, Feiliu had 8 games ranked among the Top100 grossing applications, of which 3 ranked among the Top30 on Apple’s iTunes app store in China. Average Daily ActiveUsers (DAU) for Feiliu’s games reached 68,810 in the firstquarter of 2013.
• Beijing NationSky Network Technology Co., Ltd, Inc.(“NationSky”) had over 1,250 enterprise customers as ofMarch 31, 2013.
* * *
“I am pleased to report that we started 2013 with a solid first quarter. We againachieved record revenue and began to realize the significant growth potential andsynergy from the acquisition of NationSky and Feiliu,” commented Dr. HenryLin, Chairman and Co-Chief Executive Officer of NQ Mobile. “NationSkyachieved an outstanding quarter and improved its margin significantly by growingits software and services business. Feiliu also launched two self-developed mobilegames, Dragon’s Summon and Wulin MengZhu, which have become a greatsuccess on the iOS platform in China. In 2013, we will continue our evolution tobecome a leading mobile Internet platform company by focusing on broadeningour service offerings, diversifying our revenue streams and creating synergiesamong different lines of our businesses, particularly in the China market.”
38
“In the first quarter, our consumer mobile security business in the internationalmarkets continued its strong growth and accounted for approximately 56% of thetotal consumer mobile security revenues. Furthermore, our investment in theinternational markets has started to pay off as we have begun to see upward trendsin operating margins,” added Omar Khan, Co-Chief Executive Officer of NQMobile. “As we continue our strong momentum of international growth throughthe continued expansion of our retail presence and initiating operations of keycarrier partnerships in North and Latin America, we are confident that ourinternational business will further drive and sustain our long term growth.”
* * *
Business Outlook
The Company expects net revenues to be in the range of $38.5 million and $38.8million for the second quarter of 2013 and raises the full year 2013 net revenueguidance from the previously issued range of $178 million to $183 million to arange of $179 million to $184 million.
The above forecast reflects the Company’s current and preliminary view, which issubject to possible material changes.
56. On August 12, 2013, the Company issued a materially false and misleading press
release entitled “NQ Mobile Inc. Announces Second Quarter 2012 Results”. The press release
was filed with the SEC attached to a Form 6-K on August 15, 2013. The press release stated, in
part, as follows (footnotes omitted):
NQ Mobile Inc. ... today announced its unaudited financial results for the secondquarter ended June 30, 2013.
Second Quarter 2013 Highlights
• Net revenues increased 107.4% year-over-year to $41.4million, exceeding the high end of the Company’s previousguidance of $38.5 million to $38.8 million.
• Income from operations, or operating income, decreased 65.5%year-over-year to $0.5 million. Operating income would havebeen $7.3 million, up 388.8% year-over-year, without theadditional share based compensation of $6.8 million incurredas a result that Beijing Feiliu Jiutian Technology Co., Ltd (“FLMobile”), a wholly owned subsidiary of NQ Mobile, exceededits specific operating and performance-based targets during theperiod.
39
• Non-GAAP operating income4 increased 108.5% year-over-year to $13.7 million.
• Net income attributable to NQ Mobile decreased 8.3% year-over-year to $1.9 million. Net income would have been $8.7million, up 319.7% year-over-year, without the additional sharebased compensation of $6.8 million incurred as a result that FLMobile exceeded its operating and performance-based targetsduring the period.
• Non-GAAP net income increased 111.1% year-over-year to$15.0 million.
• GAAP fully diluted Earnings per ADS was $0.03. GAAP fullydiluted Earnings per ADS would have been $0.15 without theadditional share based compensation per ADS of $0.12incurred as a result that FL Mobile exceeded its specificoperating and performance-based targets during the period.
• Non-GAAP fully diluted Earnings per ADS was $0.26. Dilutedweighted average number of ADSs outstanding increased to58.2 million in the second quarter of 2013 from 56.4 million inthe previous quarter.
• Net cash flow generated from operations was $1 1.1 million inthe second quarter of 2013, compared with $1.9 million in thecorresponding period of 2012. Cash and cash equivalents andterm deposits together amounted to $128.4 million as ofJune 30, 2013.
• Deferred revenue was $17.4 million at the end of secondquarter of 2013, up 20.8% from $14.4 million at the end of thefirst quarter of 2013.
• Days Sales Outstanding were 145 in the second quarter of2013, down 8.2% from 158 in the previous quarter.
* * *
Second Quarter 2013 Operating Metrics
• Cumulative registered user accounts were 372.2 million as ofJune 30, 2013, compared with 203.5 million as of June 30,2012 and 326.6 million as of March 31, 2013. Including87.3 million registered user accounts for FL Mobile, NQMobile had total registered user accounts of 459.5 million as ofJune 30, 2013.
40
• Average monthly active user accounts for the quarter endedJune 30, 2013 were 122.2 million, compared with 69.2 millionfor the corresponding period of 2012 and 111.0 million for thequarter ended March 31, 2013. Including FL Mobile’s16.1 million average monthly active user accounts, NQ Mobilehad total average monthly active user accounts of 138.3 millionfor the quarter ended June 30, 2013.
• Average monthly premium user accounts for the quarter endedJune 30, 2013 were 11.3 million. We define premium useraccounts as any user account that generates revenues eitherthrough direct payment or indirect payment from third partydevelopers and advertisers. This will replace the paying useraccount metric we have used previously as we expand themonetization of our active user accounts. Average monthlypremium user accounts should not be compared with the7.4 million paying user accounts in the corresponding period of2012 and 9.2 million paying user accounts for the quarterended March 31, 2013.
• FL Mobile operated and distributed a total of 18 games on iOSand 42 games on Android platforms as of June 30, 2013. In thesecond quarter of 2013, FL Mobile had 9 games ranked amongthe Top 100 grossing applications, of which 3 ranked amongthe Top 30 on Apple’s iTunes app store in China. AverageDaily Active Users for FL Mobile’s games reached 98,595 inthe second quarter of 2013.
• Beijing NationSky Network Technology Co., Ltd, Inc.(“NationSky”) had over 20 Mobile Device Management(“MDM”) enterprise customers and over 1,250 total enterprisecustomers as of June 30, 2013.
* * *
“I am pleased to report that we again achieved record revenues in the secondquarter of 2013,” commented Dr. Henry Lin, Chairman and Co-Chief ExecutiveOfficer of NQ Mobile. “We are excited about the progress of our expandedmonetization efforts across our platform. As a leading mobile Internet platform,we will continue to grow our user base around the world and broaden ourmonetization capabilities. We are now not only generating security subscriptionrevenues but significant gaming and advertising revenues as well. This is only thebeginning of our exciting journey forward.”
“We have also made significant progress in our dual top priority focus areas thatwe previously highlighted last quarter,” added Omar Khan, Co-Chief ExecutiveOfficer of NQ Mobile. “First, we are accelerating our monetization success acrossour platform and the strategy is working. Second, we have successfully started to
41
execute against the objective of increasing shareholder value. In both cases, weare still in the early stages of this exciting path forward and we believe that wehave only just begun to deliver against our own expectations and plans. We lookforward to much more progress and success in these efforts in the near term.”
* * *
Business Outlook
The Company expects net revenues to be in the range of $50 million to $51million for the third quarter of 2013 and raises the full year 2013 net revenueguidance from the previously issued range of $179 million to $184 million to$185 million to $188 million.
The above forecast reflects the Company’s current and preliminary view, which issubject to possible material changes.
57. On September 20, 2013, the Company issued a false and misleading press release
entitled “NQ Mobile now expects revenues to exceed the top end of its guidance range of $50-
$5 1mm for Q3 2013; appoints KB Teo as Chief Financial Officer”. The press release was filed
with the SEC as an attachment to a Form 6-K on September 24, 2013. In addition to falsely
proclaiming that the Company’s quarterly revenues for the third quarter 2013 would exceed its
previous estimate, Co-CEO Khan falsely stated that: “Our business momentum continues and
we are excited by the performance of our businesses up to this point in the quarter leading to a
better than expected forecast.”
58. On October 7, 2013, the Company filed with the SEC a Form 6-K signed and
authorized by Defendant Lin attaching NQ’s Unaudited Interim Condensed Consolidated
Balance Sheets as of December 31, 2012 and June 30, 2013, Unaudited Interim Condensed
Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2012,
Unaudited Interim Condensed Consolidated Statements of Shareholders’ Equity for the Six
Months Ended June 30, 2012 and 2013, Unaudited Interim Condensed Consolidated Statements
of Cash Flows for the Six Months Ended June 30, 2012 and 2013, and Unaudited Interim
Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2012 and
42
2013, which were certified by Defendant Lin. The attachments to the Form 6-K falsely stated
the following:
As 01I)ecember3l. June30,
Note 2012 2013Uss LJsS
ASSETSCurrent assets:
Cash and cash equivalents 18,862 15,387Term deposits 101,503 112,969Short-term investments 4 7,573 —
Accounts receivable, net of allowances of US$1,095 and US$2,283 as ofDecember 3 I, 2012 and June 30, 2013, respectively 54,475 70,850
Inventory 429 272Prepaid expenses and other current assets 5 17,014 21,754
Total current assets 199,856 221,232Equity investments 6 13,978 35,899Property and equipment, net 7 2,434 2,538Intangible assets, net 13,213 12,275Goodwill 17,958 22,205Other non-current assets 8 279 2,085
Total Assets 247,718 296,234
LIABILITIESCurrent liabilities:
Accounts payable (including accounts payable of the consolidated variableinterest entities without recourse to the Company of US$6,019 andUS$7,63 I as of December 31, 2012 and June 30, 2013 respectively) 7,399 9,123
Receipt in advance (including receipt in advance of the consolidated variableinterest entities without recourse to the Company of US$0 and US$0 as ofDecember 31, 2012 and June 30, 2013 respectively) 322 322
Deferred revenue (including deferred revenue of the consolidated variableinterest entities without recourse to the Company of US$3,737 andUS$7,564 as of December31, 2012 and June 30, 2013 respectively) 12,234 17,437
Accrued expenses and other current liabilities (including accrued expenses andother current liabilities of the consolidated variable interest entities withoutrecourse to the Company of US$4,629 and US$10,796 as of December 31,2012 and June 30, 2013 respectively) 9 11,798 16,777
Tax payable and provision (including tax payable of the consolidated variableinterest entities without recourse to the Company of US$576 and US$1,233as of December31, 2012 and June 30, 2013 respectively) 533 1,171
Total current liabilities 32,286 44,830
Noncurrent liabilities:Deferred tax liabilities, non-current (including deferred tax liabilities, non
current of the consolidated variable interest entities without recourse to theCompany of US$1,910 and US$2,036 as of December 31, 2012 andJune 30, 2013 respectively) 12 1,910 2,145
Other non-current liabilities (including other non-current liabilities of theconsolidated variable interest entities without recourse to the Company ofUS$0 and US$0 as of December 31, 2012 and June 30, 2013 respectively) 173 12
Total Liabilities 34,369 46,987
43
NQ MOBILE INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATEDBALANCE SHEETS—(Continued)
(In thousands)
As ofI)ecember3l, June30,
Notc 2012 2013Uss Uss
SHAREHOLDERS’ EQUITYCommon shares 24 25Additional paid-in capital 208,426 237,347Statutory reserve 2,938 2,938Treasury stock (1,346) (3,220)Accumulated deficit (5,251) (481)Accumulated other comprehensive income 3,23 1 5,443
Total NQ Mobile Inc.’s shareholders’ equity 208,022 242,052
Non-controlling interest 5,327 7,195
Total shareholders’ equity 213,349 249,247
Total Liabilities and Shareholders’ Equity 247,718 296,234
NQ MOBILE INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOME(In thousands, except for share and per share data)
For the Six Months EndedJune 30,
Notc 2012 2013tJSs USS
Net RevenuesService Revenues
Mobile value added services 29,954 49,537Advertising services 3,857 8,847Enterprise mobility 193 4,898Other services 719 2,090
Product RevenuesEnterprise mobility 1,214 9,264
Total net revenues 35,937 74,636
Cost of revenues*Cost of services (7,057) (15,554)Cost of products sold (1,057) (8,713)
Total cost of revenues (8,114) (24,267)
Cross profit 27,823 50,369Operating expenses:
Selling and marketing expenses* (6,927) (11,441)General and administrative expenses* (14,669) (28,766)Research and development expenses* (3,385) (7,308)
Total operating expenses (24,981) (47,515)
Income from operations 2,842 2,854Interest income 1,499 1,714Foreign exchange (loss)/gain, net (399) 1,008
44
2204,162
12 (184)278
4,256(43)
4,213
4,256
(162)
4,094(43)
4,051
5308
5,889
(387)
5,502(732)
4,770
5,502
2,212
7,714
(732)
6,982
NQ MOBILE INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOME—(Continued)
(In thousands, except for share and per share data)
Net earnings per Class A and Class B common share, basicNet earnings per Class A and Class B common share, dilutedNet earnings per ADS, basicNet earnings per ADS, dilutedWeighted average number of common shares outstanding:
BasicDiluted
Weighted average number of ADS outstanding:BasicDiluted
*Share..based compensation expense included in:Cost of revenuesSelling and marketing expensesGeneral and administrative expensesResearch and development expenses
For the Six Months EndedJune 30,
Note 2012 2013
USS US$13 0.0182 0.018713 0.0171 0.016513 0.0910 0.093513 0.0855 0.0825
II
231,703,852 254,545,908246,750,595 289,091,898
46,340,770 50,909,18249,350,119 57,818,380
104787
8,013397
2231,509
17,7761,241
NQ MOBILE INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except for share data)
Attributable to NQ Mobile Inc.’s Shareholders’ Equity
Realized gain on available-for-sale investmentOther income, net
Income before income taxes
Income tax expenseShare of profit from an associate
Net incomeNet income attributable to the non-controlling interest
Net income attributable to NQ Mobile Inc.
Net incomeOther comprehensive (loss)/income: foreign currency translation
adjustment, net of tax
Comprehensive income
Comprehensive income attributable to non-controlling interest
Comprehensive income attributable to NQ Mobile Inc.
Common Share
AdditionalNumber of Paid-in
Shares Amounl Capital
USS USSBalance as of 216,618,463 22 157,064
StatutoryReserve
USS
AccumulatedOther Non- Total
Treasury Accumulated Comprehensive Controlling Shareholders’
Stock Deficit Income Interest Equity
USS USS USS 1SS US$—
— (11,743) 2,841 67 148,251
45
January I,2012
Exercise ofoptions andrestrictedsharesissued, netof shareswithheld
employeetaxes 3,346,945 I 247 248
Share-basedcompensation — 9,301 9,301
Issuance ofcommonshares inbusinesseornbination 2,300,000 4,196 4,196
Foreigncurrencytranslationadjustment — (162) — (162)
Net income 4.213 — 43 4,256
Deregistrationof FuzhouNetQin (67) (67)
Fair value of45% non-controllinginterests ofNationSkyatacquisition —
4,795 4,795
Balance as ofJune 30,2012 222,265,408 23 170,808 — — (7,530) 2,679 4,838 170,818
Balance as ofJanuary 1,2013 252.518.875 24 208,426 2,938 (1,346) (5,251) 3,231 5.327 213,349
Exercise ofoptions andrestrictedsharesissued, netof shareswithheldforemployeetaxes 11,303,371 I 959 960
Share-basedcompensation 20.749 — — 20,749
Issuance ofcommonshares inbusinesscombination 2,122,961 — 3,615 — 1,136 4,751
Issuance ofcommonshares inequityinvestment 2,302.400 — 3,598 3,598
Foreigncurrencytranslation 2,212 2,212
46
adjustmentt inrealized
gain onavailablelhr-saleinvestment
Realized gainonavailable-for—saleinvestment
(5) (5)Stock
repurchase (1.527,555) -— (1,874) — — (1,874)Net income — — — — — 4,770 — 732 5,502
Balance as ofJune 30,2013 266,720,052 25 237,347 2,938 (3,220) (481) 5,443 7,195 249,247
The accompanying notes are an integral part o/ this unaudited interim condensed consolidatedfinancialinfirmat/on.
NQ MOBILE INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS
(In thousands)
For the Si lonths Ended June 30,2012 2013LS$ L’SS
Cash flows from operating activities:Net income 4,256 5,502Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 433 2.575Allowance for doubtful accounts 4 1,188Share-based compensation 9,301 20,749
Foreign exchange gain / (loss), net 399 (1,008)Share of prolit from an associate (278) —
Realized gain on available-for-sale investments (5)Other income from ADR depositary arrangement (160) (160)
Changes in operating assets and liabilities:Accounts receivable (9,131) (16,709)Inventory 207 157Prepaid expenses and other current assets (1.170) (3,001)Other non-current assets — (3,779)Accounts payable 1,314 1,626Receipt in advance 322 —
Deferred revenue 2,383 5,288
Accrued expenses and other current liabilities 277 2,466Other non-current liabilities 414Tax payable and provision 70 638
Net cash provided by operating activities 8,641 15,527
Cash flows from investing activities:Placement of term deposits (43,606) (36.307)
Maturities of term deposits 9,092 26,596
Proceeds from disposals of available-for-sale investments 7,578
Disbursements from the lending of housing loans to employees (159) (80)
Proceeds from the repayments of the housing loans to employees 35 48
Cash paid for equity investments (3,478) (16,034)
Bridge loans in connection with completed and ongoing investments (5.171) (1.095)
47
Cash acquired from! (paid for) business combination, net 735 (38)Purchase ol property and equipment and intangible assets (454) (626)
Net cash (used in) investing activities (43,006) (19,958)Cash flows from financing activities:
Cash distributed to non-controlling shareholder upon disposal of a subsidiary (67)Repurchase common stock (1.874)Proceeds from exercising of share options 920 2,150
Net cash provided by financing activities 853 276Effect of exchange rate changes on cash and cash equivalents (497) 680Net (decrease) in cash and cash equivalents (34,009) (3,475)
Cash and cash equivalents at the beginning of the period 69,510 18,862Cash and cash equivalents at the end of the period 35.501 15,387
Supplemental disclosures of non-cash investing and financing activities:Issuance of common shares in business combination (note 3) 4,196 3,615Issuance of common shares in equity investments (note 6) 3,598
The accompanying notes are an integral part ofthis unaudited interim condensed consolidatedfinancialinJàrtnation.
59. On October 7, 2013, the Company issued a press release entitled “NQ Mobile Inc.
Announced Proposed Offering of US $150 Million Convertible Senior Notes”, which was filed
with the SEC as an attachment to a Form 6-K on October 9, 2013. The press release stated that
Morgan Stanley and Deutsche Bank were to be the initial purchasers of the notes. However,
under certain circumstances, the notes (and the ADRs underlining the notes, could be sold to the
public. More specifically, the press release states, in part, as follows:
The notes, the ADSs deliverable upon conversion of the notes and the Class Acommon shares represented thereby have not been registered under the SecuritiesAct of 1933, as amended (the “Securities Act”), or the securities laws of any otherjurisdiction. They may be offered and sold only in a transaction not subject to, orexempt from, registration under the Securities Act and other applicable securitieslaws. Accordingly, NQ is offering the notes only to qualified institutional buyers(“QIBs”) in reliance on the exemption from registration provided by Rule 144Aunder the Securities Act.
60. On October 16, 2013, the Company issued a press release entitled “NQ Mobile
Inc. Announces Completion of Offering of US $172.5 Million of Convertible Senior Notes”.
The press release was also filed with the SEC as an attachment to a Form 6-K. The press release
stated, in part, as follows:
NQ Mobile Inc. (NYSE: NQ), a leading global provider of mobile Internetservices (“NQ” or the “Company”), today announced the completion of the
48
offering of US$172.5 million in aggregate principal amount of convertible seniornotes due 2018 (the notes”), following the exercise in full of the option that theCompany previously granted to the initial purchasers, Morgan Stanley & Co.International plc and Deutsche Bank Securities Inc., to purchase up to anadditional US$22.5 million in aggregate principal amount of notes.
The notes will he convertible into NQ’s American depositary shares (“ADSs”),each representing as of the date of this press release five Class A common sharesof i’.Q. The initial conversion rate is 39.0472 of the Company’s ADSs perUS$1,000 principal amount of notes (which is equivalent to an initial conversionprice of approximately US$25.61 per ADS and represents an approximately 30%conversion premium over the closing trading price of the Company’s ADSs onOctober 8, 2013, which was US$19.70 per ADS). The notes will mature onOctober 15, 2018 and may be redeemed by NQ under certain circumstances on orafter October 20, 2016. It is also contemplated that holders will have the right torequire NQ to repurchase the notes on October 15, 2016 or upon the occurrence ofcertain fundamental changes. NQ anticipates using the proceeds for generalcorporate purposes, including working capital needs and potential acquisitions ofcomplementary businesses. The conversion rate is subject to adjustment upon theoccurrence of certain events.
The notes will bear cash interest at a rate of 4.00 % per year until maturity.Interest will be payable semiannually in arrears on April 15 and October 15 ofeach year, beginning on April 15, 2014.
The notes, the ADSs deliverable upon conversion of the notes and the Class Acommon shares represented thereby, have not been registered under the SecuritiesAct of 1933, as amended (the ‘Securities Act”), or the securities laws of any otherjurisdiction. They may be offered and sold only in a transaction not subject to, orexempt from, registration under the Securities Act and other applicable securitieslaws. Accordingly, NQ offered the notes only to qualified institutional buyers inreliance on the exemption from registration provided by Rule 144A under theSecurities Act.
61. Each of the foregoing statements regarding NQ’s revenues, losses and internal
controls were materially false and misleading when made. In violation of generally accepted
accounting principles (“GAAP”), NQ fraudulently announced inflated revenues, earnings and
earnings per share. NQ further misrepresented its internal controls as being adequate when, in
fact, they were inadequate and permitted the improper recordation of profits and losses during
the Class Period. NQ further misrepresented its market share, financial results, and product
49
ability and penetration. When these misrepresentations became public, Plaintiff and the Class
were injured.
C. The Truth Emerges
62. On October 24, 2013, the Muddy Waters Report was released, detailing a multi-
year fraud at the Company and providing detailed allegations regarding Defendants’
wrongdoing. More specifically, the Muddy Waters Report stated, in part, that:
• 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 researchestimates that NQ’s real market share in China is only about1 .5%, versus the approximately 55% it reports. We estimatethat its China paying user base is less than 250,000, versus thesix million NQ claims.
• NQ’s Antivirus 7.0 is unsafe for sale to consumers, and weconsider it to be spyware that makes users’ phones vulnerableto cyber attack. NQ makes a weak attempt to protect users’private data as it’s uploaded through the Chinese government’sfirewall to NQ’s server. Phones are vulnerable to MJTMattacks because NQ fails to adhere to basic security protocols.[Muddy Waters] engaged top-flight security software engineersto analyze this product.
• NQ’s purported international revenue of $36.5 million is likelyless real than its PRC revenue. NQ claims to generateinternational revenue in obscure markets, and throughmysterious counterparties that seem to seldom pay.
• NQ’s future is as bleak as its past. The recent pivot toadvertising and gaming is merely an attempt to change to afraud that NQ hopes will be less obvious. NQ cannot monetizeusers that it does not have.
• NQ’s acquisitions are highly likely to be corrupt.
• NQ’s cash balances are highly likely to not be real. In NQ’s2012 20-F, PwC classified all cash and term deposits as Level2 assets (slightly hard to value), which is the first time we haveseen this. NQ’s purported movements of cash from its IPOalmost certainly did not occur due to PRC FX controls. Wetherefore believe the term deposits are likely forgeries.
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63. On October 24, 2013, as the market absorbed the disclosures made in the Muddy
Waters Report, NQ’s stock price plummeted. The stock closed at $22.88 on October 23, 2013,
the last day of trading prior to the release of the revelations in the Muddy Waters Report. NQ
stock closed on October 24, 2013 at $12.09, trading at its highest volume in history as the
Company’s shares lost over 47% of their value on October 24, 2013, alone. In just a few hours
of trading on the afternoon of October 25, 2013, the stock dropped to a closing price of $10.63,
for a total loss of approximately 54% of the Company’s value.
VIII. LOSS CAUSATION/ECONOMIC LOSS
64. During the Class Period, as detailed herein, Defendants engaged in a scheme to
deceive the market and a course of conduct that artificially inflated the Company’s stock price,
and operated as a fraud or deceit on acquirers of the Company’s ADRs. As detailed above, when
the truth about NQ’s misconduct and its lack of operational and financial controls was revealed,
the Company’s securities declined precipitously as the prior artificial inflation no longer propped
up its stock price. The decline in NQ’s ADRs was a direct result of the nature and extent of
Defendants’ fraud finally being revealed to investors and the market. The timing and magnitude
of the common stock price decline negates any inference that the loss suffered by Plaintiff and
other members of the Class was caused by changed market conditions, macroeconomic or
industry factors or Company-specific facts unrelated to the Defendants’ fraudulent conduct. The
economic loss, i.e., damages, suffered by Plaintiff and other Class members was a direct result of
Defendants’ fraudulent scheme to artificially inflate the Company’s stock price and the
subsequent significant decline in the value of the Company’s ADRs when Defendants’ prior
misrepresentations and other fraudulent conduct was revealed.
65. At all relevant times, Defendants’ materially false and misleading statements or
omissions alleged herein directly or proximately caused the damages suffered by the Plaintiff
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and other Class members. Those statements were materially false and misleading through their
failure to disclose a true and accurate picture of NQ’s business, operations and financial
condition, as alleged herein. Throughout the Class Period, Defendants publicly issued materially
false and misleading statements and omitted material facts necessary to make Defendants’
statements not false or misleading, causing NQ’s securities to be artificially inflated. Plaintiff
and other Class members purchased NQ’s securities at those artificially inflated prices, causing
them to suffer the damages complained of herein.
IX. NO SAFE HARBOR
66. The statutory safe harbor under the Private Securities Litigation Reform Act of
1995, which applies to forward-looking statements under certain circumstances, does not apply
to any of the allegedly false and misleading statements plead in this complaint. The statements
alleged to be false and misleading herein all relate to then-existing facts and conditions. In
addition, to the extent certain of the statements alleged to be false may be characterized as
forward-looking, they were not adequately identified as “forward-looking statements” when
made, and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements. Alternatively, to the extent that the statutory safe harbor is intended to apply to any
forward-looking statements plead herein, Defendants are liable for those false forward-looking
statements because, at the time each of those forward-looking statements was made, the
particular speaker had actual knowledge that the particular forward-looking statement was
materially false or misleading, and/or the forward-looking statement was authorized and/or
approved by an executive officer of NQ who knew that those statements were false, misleading
or omitted necessary information when they were made.
COUNT I
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(Against All Defendants)Violations of Section 11 of the Securities Act
67. Plaintiff repeats and re-alleges each and every allegation contained in each of the
foregoing paragraphs. However, Defendants’ liability under this Count is predicated on the
participation of each Defendant in conducting the IPO pursuant to the Registration Statement,
which contained untrue statements and omissions of material fact. This Count does not sound in
fraud. Any allegations of fraud or fraudulent conduct and/or motive are specifically excluded
from this Count. For purposes of asserting this claim under the Securities Act, Plaintiffs do not
allege that Defendants acted with scienler or fraudulent intent, which are not elements of a
Section 11 claim.
68. This Count is asserted against all Defendants for violations of Section 11 of the
Securities Act, 15 U.S.C. § 77k, on behalf of all members of the Class who purchased or
otherwise acquired the Company’s ADRs in, or traceable to, the IPO.
69. The Registration Statement contained untrue statements of material fact and
omitted other facts necessary to make the statements not untrue, and failed to disclose material
facts as described above. NQ was the Registrant, while the Individual Defendants and the
Director Defendants were executive officers and/or directors of the Company at the time the IPO
was declared effective by the SEC and they signed the Registration Statement. As such, said
Defendants issued, caused to be issued, and participated in the issuance of the Registration
Statement and are subject to liability for violations of Section 11 of the Securities Act. The
Underwriter Defendants are also liable pursuant to Section 11 of the Securities Act because they
were underwriters of the IPO and failed to exercise appropriate due diligence before conducting
the IPO.
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70. Plaintiff and other members of the Class who acquired the ADRs in, or traceable
to, the IPO pursuant to the Registration Statement did not know of the negligent conduct alleged
herein or the untrue statements of material fact and omissions of material facts as alleged herein,
and could not have reasonably discovered such facts or conduct.
71. Plaintiff has brought the present action as soon as the untrue statements contained
in the Registration Statement were discovered or reasonably could have been discovered.
Likewise, less than three years have elapsed from the time that the securities upon which this
Count is brought were offered to the public.
72. Plaintiff and the other members of the Class have sustained damages. The value
of NQ’s ADRs sold in the IPO have declined substantially subsequent to and in response to
Defendants’ violations of the Securities Act. By reason of the foregoing, Defendants are liable
for violating Section 1 1 of the Securities Act to Plaintiffs and the other members of the Class
who purchased or otherwise acquired NQ shares pursuant or traceable to the Registration
Statement.
COUNT II(Against NQ and the Underwriter Defendants)
Violations of Section 12(a)(2) of the Securities Act
73. Plaintiff repeats and re-alleges each of the allegations set forth above as if fully
set forth herein. This Count is asserted against NQ and the Underwriter Defendants for
violations of Section 12(a)(2) of the Securities Act, 15 U.S.C. § 771(a)(2), on behalf of all
members of the Class who purchased or otherwise acquired the NQ shares pursuant to the
prospectus, which was part of the IPO (the “Prospectus”).
74. The Underwriter Defendants were sellers, offerors, and/or solicitors of sales of
ADRs offered pursuant to the Prospectus. NQ also actively solicited the sales of the ADRs that
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were offered and sold pursuant to the Prospectus. The Prospectus contained untrue statements of
material fact and omitted other facts necessary to make the statements not misleading, and failed
to disclose material facts, as set forth above.
75. Plaintiffs and other members of the Class who purchased or otherwise acquired
ADRs in the IPO pursuant to the materially untrue and misleading Prospectus did not know or, in
the exercise of reasonable diligence could not have known, of the materially false and misleading
statements and omissions contained in the Prospectus.
76. The Underwriter Defendants and NQ owed to Plaintiffs and other members of the
Class who purchased or otherwise acquired ADRs in the IPO pursuant to the materially untrue
Prospectus the duty to make a reasonable and diligent investigation of the statements contained
in the Prospectus, to insure such statements were true and that there was no omission of material
fact necessary to prevent the statements contained therein from being misleading. The
Underwriter Defendants and NQ did not make a reasonable investigation or possess reasonable
grounds to believe that the statements contained in the Prospectus were true and without
omissions of any material facts and were not misleading. By virtue of the conduct alleged
herein, the Underwriter Defendants and NQ violated Section 1 2(a)(2) of the Securities Act.
77. Plaintiffs, individually and representatively, hereby offer to tender to Defendants
those shares which Plaintiffs and other Class members continue to own, on behalf of all members
of the Class who continue to own such shares, in return for the consideration paid for those
shares together with interest thereon. Class members who have sold their NQ shares are entitled
to rescissory damages.
COUNT III(Against the Individual and Director Defendants)
Violations of Section 15 of the Securities Act
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78. Plaintiffs repeat and re-allege each of the allegations set forth above as if fully set
forth herein. This Count is asserted against the Individual and Director Defendants for violations
of Section 15 of the Securities Act, 15 U.S.C. § 77o, on behalf of Plaintiff and the other members
of the Class who purchased or otherwise acquired NQ’s ADRs issued in the IPO.
79. At all relevant times, the Individual Defendants and Director Defendants were
controlling persons of the Company within the meaning of Section 15 of the Securities Act.
Each of the Individual and Director Defendants served as an executive officer and/or director of
NQ prior to and at the time of the IPO. Each of the Individual and Director Defendants at all
relevant times participated in the operation and management of the Company, and conducted and
participated, directly and indirectly, in the conduct of NQ’s business affairs. As officers and/or
directors of a publicly owned company, the Individual and Director Defendants had a duty to
disseminate accurate and truthful information about NQ’s securities and with respect to the
Company’s internal controls. By reason of the aforementioned conduct, the Individual and
Director Defendants are liable under Section 15 of the Securities Act, jointly and severally with,
and to the same extent as, the Company to Plaintiff and the other members of the Class.
COUNT IV(Against NQ and the Individual Defendants)
Violations of Section 10(b) of the Exchange Act and SEC Rule lOb-5
80. Plaintiff repeats and re-alleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
81. This Count is asserted against NQ and the Individual Defendants and is based
upon Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule lOb-5 promulgated
thereunder.
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82. During the Class Period, these Defendants, singly and in concert, directly engaged
in a common plan, scheme and unlawful course of conduct, pursuant to which they knowingly or
recklessly engaged in acts, transactions, practices and course of business which operated as fraud
and deceit upon Plaintiff and the other members of the Class, and failed to disclose material
information in order to make the statements made, in light of the circumstances under which they
were made, not misleading to Plaintiff and the other members of the Class. The purpose and
effect of said scheme, plan and unlawful course of conduct was, among other things, to induce
Plaintiff and the other members of the Class to purchase NQ’s securities during the Class Period
at artificially inflated prices.
83. As a result of the failure to disclose material facts, the information these
Defendants disseminated to the investing public was materially false and misleading as set forth
above, and the market price of NQ’s securities was artificially inflated during the Class Period.
In ignorance of the false and misleading nature of the statements described above and the
deceptive and manipulative devices and contrivances employed by these Defendants, Plaintiff
and other members of the Class relied, to their detriment, on the integrity of the market price of
NQ’s securities in purchasing their shares. Had Plaintiff and the other members of the Class
known the truth, they would not have purchased said shares or would not have purchased them at
the inflated prices that were paid.
84. Plaintiff and other members of the Class have suffered substantial damages as a
result of the unlawful conduct alleged herein in an amount to be proved at trial.
85. By reason of the foregoing, Defendants directly violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder in that they: (a) employed devices,
schemes and artifices to defraud; (b) failed to disclose material information; or (c) engaged in
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acts, practices and a course of business which operated as a fraud and deceit upon Plaintiff and
the other members of the Class in connection with their purchases of NQ’s securities during the
Class Period.
COUNT V(Against the Individual Defendants)
Violations of Section 20(a) of the Exchange Act
86. Plaintiff repeats and re-alleges each and every allegation contained in each of the
foregoing paragraphs as if set forth fully herein.
87. The Individual Defendants, by virtue of their positions, stock ownership and/or
specific acts described above, were, at the time of the wrongs alleged herein, controlling persons
within the meaning of Section 20(a) of the Exchange Act.
88. The Individual Defendants had the power and influence — and exercised such
power and influence — as to cause NQ to engage in the unlawful conduct and practices
complained of herein.
89. By reason of the conduct alleged in Count IV of this Complaint, the Individual
Defendants are jointly and severally liable to the same extent as the Company for the aforesaid
unlawful conduct, and are liable to Plaintiff and to the other members of the Class for the
substantial damages which they suffered in connection with their purchases of NQ’s securities
during the Class Period.
X. PRAYER FOR RELIEF
WHEREFORE, Plaintiff on his own behalf and on behalf of the Class, prays for
judgment as follows:
A. Determining this action to be a proper class action and certifying Plaintiff
as class representative under Rule 23 of the Federal Rules of Civil Procedure;
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B. Awarding compensatory damages in favor of Plaintiff and the other
members of the Class against Defendants, jointly and severally, for the damages sustained as a
result of the wrongdoings of Defendants, together with interest thereon;
C. Awarding Plaintiff the fees and expenses incurred in this action including
reasonable allowance of fees for Plaintiff’s attorneys and experts;
D. Granting extraordinary equitable and/or injunctive relief as permitted by
law; and
E. Granting such other and further relief as the Court may deem just and
proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: October 29, 2013 WOLF HALDENSTEIN ADLERFREEMAN & HERZ LLP
By_____Gregory M. NespoleGiti Baghban270 Madison AvenueNew York, New York 10016Telephone: (212) 545-4600Facsimile: (212) 545-4653
BLOCK & LEVITON LLPJeffrey C. BlockJason M. LevitonSteven P. Harte155 Federal Street, Suite 1303Boston, MA 02110Telephone: (617) 398-5600Facsimile: (617) 507-6020
Attorneys for the Plaintiff732329
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PLAINTWP’S CERTfl1CATION OP SEC1JIUflESfLD CLASS ACfIQQML4JNT
I, Tabseen Ghaun, hereby certi’ that the following is true and correct to the best ofmy knowledge, information and belief
2 .1 have reviewed the facts and allegations against NQ Mobile, Inc. (NYSE:NQ).
3. 1 am willing to serve as a representative party on behalf of the class in thisaction, including providing testimony at deposition and trial, if necessary.
4. My transactions in NQ Mobile, Inc. securities during the Class Period are asfollows:
DATE TRANSACTION NO. OF ShARES PRICE PER SHARE(buyorsdl)
• 1of/o -.
5. I did not purchase these securities at the direction of counsel, or in order toparticipate in any private action arising under tho federal securities laws.
. During the three-year period preceding the date of my signing thisCertification, I have never sought to be appointed nor have I ever been appointed as leadplaintiff or class representative in any class action arising under the securities laws of theUnited States.
7. . I will not accept any payment for serving as a representative party on behalfof the Class beyond my v rata share of any. possible recovery, except for an award, usordered or approved by the court for reasonable casts and espenses (including lost wages)directly relating to my representation of the Class.
Signed under the penalties ofperjury this day of. 6dror 2013.
1.-. Tahacen Ghaurl