Shares of Chinese mobile security-software maker,
) plunged as the company dismissed the services of Pricewaterhouse
Coopers Zhong Tian LLP (PwC) as its independent auditor. Instead,
NQ Mobile appointed Marcum Bernstein Pinchul LLP (MBP) as the new
auditor for fiscal 2013 and subsequent periods.
NQ Mobile shares fell as much as 21.0% to hit a 52-week low of
$3.45 on July 18, 2014. However, the stock rebounded 15.2% to close
the day at $5.01.
PwC's dismissal came after NQ Mobile management decided that it
will be difficult for the company to comply with the auditor's
request of expanding its scope in the operations going forward.
Expanding PwC's scope in operations would have resulted in delaying
filing of its 2013 Annual Report, as the auditor had asked for
certain third-party related information, which would have been
difficult for the company to obtain. However, NQ Mobile insisted
that there was no disagreement with PwC on any matter of accounting
principles or otherwise.
We believe that the dismissal of PwC at such a crucial time may
adversely impact investor confidence, which will remain an overhang
on the stock. In such a scenario, speeding up of Annual Report
filing will be a major positive that will revive trust among
Of late, the company has been facing headwinds related to its
corporate governance practices. NQ Mobile recently responded to a
Muddy Waters' research report dated Jul 7, 2014, which accused the
company of being a "massive fraud" with at least 72.0% of its 2012
China security revenue fictitiously coming from a shell company
called Yidatong, which was actually owned by NQ itself.
Moreover, NQ Mobile was also accused of concealing important
information from public including the stepping down of the head of
the company's audit committee, Ying Han.
NQ Mobile responded to these accusations by conducting an
independent investigation. This investigation was conducted by a
Special Committee comprising four of its independent directors
along with two renowned firms, Shearman & Sterling LLP and
Deloitte & Touche Financial Advisory Services Limited. The aim
of the investigation was to determine whether NQ Mobile had
resorted to any unfair means or not.
The results of the investigation were revealed to the public soon
after it was over. Per the investigation, NQ Mobile had submitted
all material information within the stipulated timeframe as well as
in full compliance with all Securities and Exchange Commission
Hence, the Committee concluded that no fraudulent practice had been
adopted by NQ Mobile. However, in this case PwC refrained from
NQ Mobile reported mixed fourth-quarter results.
Better-than-expected user growth in FL Mobile's gaming platform and
new game launches remain the growth catalysts. The company's
associations with Sprint and Samsung are positives.
However, the company's margins were adversely impacted by higher
expenses and higher contribution of lower-margin businesses.
Moreover, competition from
Citrix Systems Inc.
) remains a major headwind going forward.
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