NQ CEO: Muddy Waters Allegations `Completely False’

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Oct. 25 (Bloomberg) –- NQ Mobile CO-CEO Omar Khan responds to Muddy Waters’ allegations that the Chinese mobile security provider is a “massive fraud.” He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Thanks for having me.

We were very busy earlier responding to this nonsense.

We take these validations seriously.

They are all completely false.

We approached it with transparency and we hosted a conference call with our investors and analysts this morning, nearly 400 people dialed in, for two and a half hours.

We openly addressed their questions.

We are building an extremely amazing business globally, not just in china.

We are a global internet platform company.

Muddy waters showed gross understanding of our industry as well as businesses that we are in.

Carson block has argued that at least 72% of nq's 2012 reported china security revenue is fictitious.

What do you say to that?

We have multiple billing channels, partners in greater china that are not just direct the consumer.

We are part of a broad ecosystem.

We have partnerships with oem distributors that preload our software, partners that are carriers.

We operate in an ecosystem that has many tenants in it, many parties.

It is not something that we are just involved in by ourselves.

We support our carrier partners, billing partners, we support our oem partners.

In china also, obviously we have a thriving advertising business.

20% of our business comes from enterprise mobility.

We have great partners.

We have an extremely thriving business in greater china and around the world.

Tell us exactly how your business works.

Walk us through where you are seeing these revenues.

Our business is split up into two pieces, consumer and enterprise.

We are a mobile internet platform company.

We monetize the connection between our consumers and the partners and application we bring to market.

Our platform allows us to acquire, engage, monetize, and retain users.

The way we do that on the consumer side is really built up through three pieces.

One is consumer consent -- security.

We have eight years of experience in that industry.

We were the pioneers in that industry globally.

It allowed us to build applications and technology that is truly world-class.

That is one part of the business.

The second part of the business is gaming.

We are one of the largest operators of mobile games in greater china.

The final piece of the business on the consumer side is advertising.

We have a significant business model where we monetize our active user base through connecting them with our users and connecting them with advertisers and merchants to monetize that connection.

On the enterprise side of the business, we have our own proprietary mobile device management and managed mobility services platform.

We work with large enterprises to help mobilize their workforce . in markets like greater china, we are seeing the pc revolution.

-- skipping the pc revolution.

There is a huge opportunity to work with large enterprises.

You just named two of those big operators, ge health care and shell oil.

Maybe you can settle for the viewers the difference between what carson block says it is your number of paying customers and what you say your name -- number of paying customers is.

You say it is 250,000. -- carson block says it is 250,000, you say 6 million.

Which is it?

In greater china we have 6 million paying users.

That is correct.

Globally we have 11.3 million rhenium users which also includes a users that we are monetizing through advertising and gaming.

Help the viewers understand -- forgive me for interrupting.

It is difficult with you in china and us in new york.

How can there be such a difference between you saying 11.3 mobile customers and carson block only alleging 250,000, why such a discrepancy?

I do not know exactly his methodology.

Obviously, we work directly with large partners around the world.

We are a channel friendly business model.

Much of our business comes from freeloading on devices.

Obviously, he is looking at some digital channels that he can access publicly.

Obviously, we work with our partners to recognize that revenue.

Remember, it is not just revenue we recognize.

Our partners recognize this revenue.

We are building relationships.

Here is a perfect example.

When we sell a game, and application, on the ios platform, apple keeps 30% of the revenue.

We have other partners in the ecosystem that collects revenues.

We recognize that revenues.

-- net revenues.

What is the timing of that recognition, the time of the sale, or the time the money is in your account?

It actually depends.

We recognize revenue on a conservative basis.

For a long-term contract that is a 12-month subscription, we recognize it on an amortized basis over a 12-month contract basis.

It really depends on the billing model.

We actually take a conservative recognition policy when it comes to net revenues.

Any idea what might be behind these allegations?

Why would they be targeting your company right now?

Honestly, i do not know.

We are a very transparent company.

Our cash balance is one example.

In the last 24 hours, in response, we have had two independent investment banks validate our cash balances on hand.

He has not contacted us.

He has not contacted you at any point?

He has not contacted you to verify these numbers?

No, he has not.

We welcome too.

We are an open book.

That is why we have a conference call this morning.

-- we welcome him to.

As far as double counting goes, one of the allegations carson block is making is that your largest debtor is also controlled by your company.

Can you speak to that please?

That is completely false.

They are an independent company that has no relationship with the company whatsoever.

We have no related parties.

Actually, it shows the gross misunderstanding of how the carrier ecosystem works in china.

In order to do business with carriers in china, you have to work with service providers, sp's. they are one of the largest that we work with, and that is how we -- when you are in an app and you say i want to buy the green sword or the red balloon, the way that you get that is through an sp.

They collect money from china mobile.

We collect net revenue from them , once they keep their share.

It just shows the gross misunderstanding of the carrier ecosystem and how it works in greater china.

Before we let you go, another allegation is that this visit to advertising and gaming is in fact, "merely an attempt to change to a fraud and that nq hopes will be less obvious," they write.

Why the shift into gaming and advertising?

I use this analogy a lot.

We have proven over the last eight years we know how to acquire mobile users and engage them.

A similar analogy -- when i look on the outside -- to what amazon had done.

They started by revolutionizing the book selling industry.

As they engage their consumers, the natural question was what other types of merchandise or offers would consumers be interested in?

How do i expand the shopping cart and make the experience broader?

That is the same question we asked ourselves.

It is not a shift but a broadening.

As we have these consumers that are engaged with us, what are the natural next offerings for these customers and opening our platform to third parties to help them connect with our customers?

That is where the gaming came from.

Gaming is one of the largest monetary items on mobile.

When you ask yourself what else customers might be interested in , remember, 90% of the customer that we operate our free customers.

We have defined other opportunities to monetize them other than a subscription.

We are in the mode of expanding this relationship and a monetization relationship with our customers.

Advertising and gaming does that . it is the same thing that amazon went through when they added more content and merchants to

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