The author of this aritlce is short shares of OMNT
Can a company use materially incorrect financials to get uplisted to (and remain listed on) the Nasdaq? Looking at what has happened with Ominto Inc. ( $OMNT ), it appears so.
In March 2017, OMNT was uplisted to the Nasdaq. One of the criteria for achieving this uplisting was to have stockholders’ equity of at least $4 million, which OMNT did based on its December 31, 2016 balance sheet (filed in a 10Q on Feb. 14, 2017) which listed stockholders’ equity of $6.6 million.
We have long speculated that OMNT’s stockholders’ equity at December 31, 2016 was actually significantly less than the company was claiming and that OMNT had inflated this figure so it could qualify for a Nasdaq listing (and so the CEO could receive a large bonus that was contingent upon this uplisting). Specifically, we believe OMNT used highly questionable accounting for its December 2017 investment in Lani Pixels which helped OMNT increase its stockholders’ equity to over the $4 million threshold required to achieve a Nasdaq listing.
After changing auditors a few times, yesterday OMNT filed an amended 10Q with restated financials. The restated financials show that at December 31, 2016 OMNT’s stockholders’ equity was actually only $1.5 million. This figure is materially below the $6.6 million that had been previously reported and more importantly, significantly below $4 million required to achieve the Nasdaq listing. This raises the question of how can the Nasdaq allow OMNT to remain listed when it apparently didn’t actually meet the listing requirements that other companies must comply with?
OMNT’s amended 10Q also disclosed several important related party transactions that had not, for some reason, been previously disclosed by the company.
The amended 10Q also disclosed that Lani Pixels was already in default on some of its debt, which should make people even more suspicious about the rationale behind and valuation of OMNT’s investment in this company.
OMNT still has not filed its June 10Q and we believe the company will need to restate its March 10Q as well, so we doubt the investment community has sufficient, reliable information to adequately assess the company’s value and trade its stock.
We also believe OMNT will have to take additional write-offs and raise capital which is probably not a good thing for shareholders of this money losing company whose business model (multi-level marketing) is highly controversial.
We have long believed OMNT was not a high quality company that had numerous “red flags” including questionable shareholders, questionable accounting, many auditor changes, questionable disclosure, significant related party transactions, etc. Therefore, we felt OMNT did not deserve to be listed on the Nasdaq. Now that OMNT was forced to restate its financials, it is clear to us that not only does OMNT not deserve a Nasdaq listing but OMNT does not even qualify for one.
In light of all these disclosures we believe the Nasdaq should immediately delist OMNT. If the Nasdaq fails to do so, investors will have to wonder if the Nasdaq is more interested in pocketing listing fees than in protecting the average investor.
We remain short OMNT