Quote:Day 1 of DD in Beijing:
We are working on documenting our observations on Part 3 but wanted to provide an update on our DD. We arrived in Beijing a couple of days ago and finished our first full day of DD, which included:
1. Verification of cash at SC. It's there.
2. Verification of YDT office. YDT is still where we last visited, same building, same section of their floor. We have pictures that we will upload in our next report. Our interviews confirmed the analysis and observations we shared in our Part 2 report.
3. Verification of channel partner contracts. We reviewed the original physical paper contracts (each signed and sealed by NQ and the partner in question) for all major deals executed in 2012 and 2013. This included, among various others:
-- Carrier China Mobile, with whom NQ has three separate contracts (e.g. security scanning software to protect China Mobile's own app store, deal with Music Radar, and a regional deal with the Guangdong province branch for comprehensive security products).
-- Top 5 Chinese OEMs: Lenovo, ZTE, Huawei, Coolpad, and Gionee
-- Music portals: TTPod, Kugou (top 3 Chinese music sites) and Yinlong
4. Retailer field trip. We traveled to the electronics retail section of the area in Beijing known as the "Silicon Valley" of China to visit several physical retail points of sale for handsets. In a large, electronics department store of sorts, we visited five separate retailers of NQ prepaid cards. We then walked over to DXT (a Best Buy-like physical electronics retailer with 3,000 stores across China) and verified that they sold NQ in their smartphone bundle product, which bundles prepaid subscriptions for a leading mobile game, a mobile lottery product, and NQ's security product.
Will post further updates as they happen if we do not have a chance to document our findings in a follow-up report.