On December 27, 2019, QTT issued a response to our report with a headline stating that it was “false and misleading,” using the same tired formula of responding (poorly, in our opinion) to only a few points, while ignoring arguably the most serious issues we brought up. QTT only addressed seven points and did so with explanations that were, in our view, vague and, in some cases, contained blatant material misrepresentations.
In this report, we will explain why we believe QTT’s explanations for the 7 points it did address are inadequate at best. We will also present some of the new information we have uncovered related to QTT’s dealings with another related party, Wutong Holding Group Co., Ltd., a publicly-traded company on the Shenzhen Stock Exchange (Ticker: 300292 CH).
We want to point out QTT’s biggest lies, as well as its key omissions and non-responses to some of our most important points because, as a long-held maxim of common law says, silence is a tacit admission of guilt:
1 QTT has failed to explain why its 2018 reported revenues in China were ~RMB 1 billion (~$135 million) lower than those they reported to the SEC and U.S. investors.
2 QTT has provided no proof of its cash and short-term investments balance, and we have found additional reasons for concern. Namely, ~RMB 7 million of missing interest income in 3Q19 - the same quarter QTT moved 75% of its purported liquidity into short-term investments in China.
3 QTT has failed to address the additional RMB 1.61 billion in customer advances reported by its Chinese subsidiaries that are absent from its SEC filings.
4 QTT’s attempt to explain the inconsistencies in Dianguan’s SAIC filings and credit reports on gross vs. net revenue presentation raised more questions than it answered.
5 QTT’s attempt to explain its rationale for the Dianguan acquisition highlighted the absurdity of this undisclosed related-party transaction.
6 Dianguan’s website, which QTT is apparently so proud of, is far less functional and looks less professional than the websites of the agents QTT claimed to do little-to-no business with. In fact, yesterday the “contact us” button was entirely removed from Dianguan’s website.
7 In our view, QTT has continued to deceive investors with regard to the scope, nature, and quantity of its undisclosed related party transactions.
8 QTT’s explanation of the economics of its “loyalty program” only included the “user engagement” portion of its loyalty program expenses, which our analysis of QTT’s filings shows, accounts for less than half of its total loyalty program expenses.
9 QTT’s disclosures regarding insider sales are welcome, but QTT’s reluctance to disclose the current holdings of its Insiders and Principal Shareholders raises serious questions. QTT has not disclosed the holdings of its Principal Shareholders or insiders since April 3, 2019.
10 QTT has accused us of being dishonest regarding its numerous lawsuits, yet QTT has not disclosed the fact that RMB 86 million of its bank accounts were frozen by a Chinese court on December 23, 2019.
11 QTT has not denied the accuracy of the ad distribution in our sample. Instead, QTT used a series of qualified assumptions to imagine a scenario that could create a skewed distribution of ad traffic on its platform.
12 QTT has not denied or even addressed the serious security issues that HybridAnalysis found in QTT’s software.
13 Detailed questions for QTT, PwC Zhong Tian, the SEC and NASDAQ.