Stocks

Ominto Inc (OMNT): How Has This Stock Not Been Delisted Yet?

Our previous articles have raised numerous red flags about Ominto Inc. ($OMNT) which appears to us to be one of the most obvious frauds we have seen in some time.  Putting aside that it trades at an outrageous valuation (9x revenue and loses money), has a bad business model (an MLM) and likely needs capital, we now have even more proof  that OMNT may have engaged in fraudulent transactions that enabled the company to get a Nasdaq uplisting, which then triggered a multi-million dollar bonus for the CEO.

Get The Full Distressed Investing Series in PDF

Get the entire 10-part series on Distressed Investing in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Ominto Inc

The most questionable of Ominto Inc's transactions closed on December 13, 2016.  On that date OMNT exchanged 2.4 million shares of stock that were valued at $4 per share to acquire a 40% interest in a Danish animation company named Lani (which implies a valuation for Lani of $25 million).  This was a related party transaction and we see no synergies or strategic rationale for the investment.  Importantly, in the recently released audited financials for Lani for CY2016 (which ended 2 weeks after the OMNT investment closed), Lani received a going concern from its auditors who noted “substantial doubt about the company’s ability to continue as a going concern.” The audit also revealed that Lani’s 2016 revenues were only $133k, down 55% from 2015 and much less than the $647k listed in the pro formas.   So, why would OMNT invest in Lani at a $25 million valuation when the company appears to be worthless????????

Interestingly, on December 13, 2016 OMNT also completed another stock for stock investment in which it exchanged 800k Ominto Inc  shares, again valued at $4 per share, in exchange for 20% of Quant Systems, an IT consulting firm.  This implies a valuation for Quant of $16 million. We see very little strategic or financial rationale for this investment nor have we found anything to justify such a valuation.  Quant’s website (http://www.quantsystemsinc.com/) has rather poor English, doesn’t even list a contact person in case you wanted to give them any business, shows very little news about the company (nor is there much on a google search), etc.  We find it hard to believe Quant is worth $16 million.

So, why did OMNT do the Lani and Quant stock for stock investments?  One possible explanation is that these investments enabled Ominto Inc to increase its shareholders equity from ($7.5) at September 2016 to $6.6 million at December 2016 thereby meeting the $4 million threshold necessary to qualify for a Nasdaq uplisting, which OMNT received in early March 2017 and which triggered a generous bonus for the CEO!

We remain short OMNT

Links to documents:

Lani audits :

https://www.sec.gov/Archives/edgar/data/1097792/000121390017006983/0001213900-17-006983-index.htm

Original pro formas for Lani deal:

https://www.sec.gov/Archives/edgar/data/1097792/000121390017001811/0001213900-17-001811-index.htm