Muddy water again network Qin

SAN FRANCISCO, July 7 afternoon news, the United States short agency muddy water released a report on July 6 said NetQuan's recent statement is still misleading investors, misinterpreting their true audit status, and may deliberately delay the information Publish the time to protect insider selling stocks.

The following is the full report:

NetQin's statement on July 3 proved that the short seller was correct, but the company may have deliberately delayed the release date of the announcement in order to give Chinese insiders a chance to illegally sell their shares illegally. The statement also disguised the bad audit of NetQin. Just hours before the American Independence Day holiday started on July 4, Net Qin announced the resignation of Han Ying, chairman of the audit committee. NetQin also announced that PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. (PwC) requested to expand the scope of the audit - prior to that, the audit firm's audit report has been delayed for more than two months release. Although both news proved that Nethersole short sellers were correct, we still have serious doubts:

- Net Qin deliberately concealed both messages so that the company's Chinese insiders and their agents could illegally sell more shares at the expense of the interests of existing shareholders.

- NetQin once again misinterpreted its true audit status and its relationship with PricewaterhouseCoopers. NetQin's earlier statements and actions made it clear that the company had long known that PricewaterhouseCoopers would never release an unqualified 2013 audit report. The claim that PricewaterhouseCoopers is seeking to extend the scope of the audit is a misleading attempt to keep "passengers" on the sinking ship NetQin (for the exclusive "lifeboat" inside NetQin).

We believe that by June 25: a) Han Ying has informed NetQin about the decision to resign and b) NetQin has learned that PricewaterhouseCoopers will not issue an unqualified audit report. NetQin may offer Insiders a chance to sell shares by postponing the release date for at least a week. The reason we hold this view is that the stock dropped 5.3% on 25 June without any news release, and fell another 4.5% and 4.7% in succession on the two trading days thereafter. During this period, the trading volume of ADS (ADSs) increased significantly from the daily average of 5.2 million shares before June 25 to an average of 9.8 million shares a day.

According to the statistics in the following table, from June 25, Net Qin pay a substantial increase:

Starting from June 25, Net Qin pay a substantial increase

We believe that by delaying the announcement date, Sinotrac China insiders could sell a large number of shares before the company's announcement.

The departure of Han Ying exposed the corrupt nature of the "independent" investigation conducted by the directors of Net Qin. Although NetQin claimed that Han Ying's departure for "personal reasons", but the matter is clearly related to NetQin's own problems. As Han Ying still serves as Chairman of the Audit Committee of WuXi PharmaTech, this issue is further explained. Just a few weeks ago, a survey conducted by four directors, including Han Ying, also revealed that "no evidence" of the Internet fraud was found. However, the survey found extensive evidence of bribery. (In an open letter to the Independent Commission on CyberKind on December 19, 2013, we warned investors to be wary of corruption that is often involved in such surveys. In that letter, we quoted an example of another eight Chinese businesses. As the so-called Of the "Independent Commission" did not hold the wrongdoing of the managers who had friend relations with them, resulting in heavy losses to the shareholders of the eight companies.)

The facts have long been clear: PricewaterhouseCoopers will never release an unqualified audit report. NetQin's statement on PricewaterhouseCoopers's request to expand the scope of the audit is a distortion of the facts. PricewaterhouseCoopers also demanded that the scope of the audit should be expanded after it was postponed 64 days from the established date of Form 20-F, which is completely untenable. The following chronology lists the detailed events that support our conclusion.

Chronology of events

- PricewaterhouseCoopers may plan to expand the scope of the audit as early as several months ago, and has made this request rather than the one just proposed. Our initial report, released on October 24, 2013, was more than two months earlier than the PwC audit began. If we were to report after PricewaterhouseCoopers had begun auditing, it would be understandable that PricewaterhouseCoopers would then request an expansion of the scope of the audit and a postponement of the release of the audit report. However, the release of our initial report has given PricewaterhouseCoopers enough time to adjust its audit and audit process before the audit begins. If PricewaterhouseCoopers wants to expand the scope of the audit, the corresponding requirements should have been issued.

- Obviously, audit activity ran into trouble in mid-February. A few years ago, net Qin are announced in mid-February fourth quarter results release date. In the two previous years, the company released its fourth quarter results on March 6. However, net Qin 2013 performance release plan is different. The company did not announce its release until March 25, more than a month later than normal. The company's announcement of the earnings release this year appears to be a response to a research report rather than a detailed plan with the support of PriceWaterhouseCoopers. Just hours after NetQin released the announcement, investment bank J Capital Research just released a report titled "Time to Quit," stating that NetQuan's failure to provide an earnings release date indicates that the company is out The problem. In the end, NetQin released its Q4 results on April 10, 2014. NetQin announced the release date of the earnings report after J Capital issued a report that the company's earnings have not been received due to the audit's troubles Wing Road recognition.

- NetQin survey released on June 4 shows that by early June, Qin Qin strongly felt that it eventually unable to obtain unqualified audit report. NetQin announced on April 10 that the final findings of the Independent Commission will be released in 20-F, and reiterated this on April 30. However, Qin eventually did not wait until 20-F, they released the result in advance. On June 4, NetQin released the final findings through a press release. The change in this plan shows that Net Qin strongly felt that it could not obtain an unqualified audit report. (This good news made the stock soar by 30.9% on the day and may give insiders a chance to flee another share sale.)

The most recent move is just another trick to distort NetQuen's audit.

- Net Qin released a strong signal by releasing its results and holding a conference call on June 4: an unqualified audit report will become a given fact. The reason is that if a company can not determine whether it can get an unqualified audit report, it is unlikely to release its full-year results.

- In a April 10 conference call, Omar Khan, the company's CEO, said he expected NetQin to file 20-F documents by April 30. He said at the time: "Under the current audit plan ... we currently plan to comply with the statutory deadline and submit it to 20F on April 30."

- After NetQin missed the second deadline on May 15, Matt Mathison, its vice president, assured investors privately that the audit report was ready and PricewaterhouseCoopers just needed Do more compliance procedures.

What is the status quo?

We believe that NetQin's PwC hope to expand the scope of the audit, and the Board of Directors is evaluating the misleading statement of this requirement, but to find an excuse for the replacement of auditors net Qin. In other words, NetQin may have already decided to fire PwC, or PricewaterhouseCoopers already submitted his resignation to NetQin. It seems unlikely that any of the Big Four accounting firms will take over the audit business of NetQin. Although NetQin's long-term plan is to avoid being another Chinese company that went bankrupt due to fraud, we expect insiders will continue to pursue more mergers and acquisitions to extract corporate value.

According to the current stock price level, if the company started the merger through cash, not surprisingly. Since the company issued convertible bonds in October 2013, it should hold cash. At the same time, NetQin may also release more good news (but not release financial data) in cooperation with big-name companies and may even continue to report outstanding fake financial data and further sell its subsidiaries in batches (possibly There is corruption), so that the net market value of Qin seems low tempting. If NetQin really can push up the stock price again, we expect the company will issue more shares and more illegal insider trading.

The reason why we make these assumptions is based on the past bad behaviors of NetQin. The two most recent examples are as follows:

- On April 30, when it missed the deadline for the 20-F report, Net Qin released a highly favorable press release stating that its independent commission's investigation found no evidence of wrongdoing. The news pushed the stock up 10.8% on the day to $ 12.36, to 2.7 times the closing price of $ 4.58 on Friday.

- On May 30, when NetQin's 20-F expired one month later, NetQin rashly upgraded the first-quarter guidance and said the second-quarter revenue growth is expected to exceed 100% YoY. On the same day, the company also announced it would sell a minority stake in Flystream, which is almost certainly corrupt, giving it a valuation equal to its market capitalization. However, Qin did not acknowledge in any of these press releases that they did not submit 20-F on schedule. These statements prompted the stock to rise 11.8% to $ 7.59. (Book Yu)

Company Profile:

Net Qin was founded in 2005, is a mobile security services vendors. Network Qin's core products include "net Qin mobile anti-virus", "Net Qin communications housekeeper", "Qin net mobile guards" and so on.