|Shares Out. (in M):||19||P/E||0||0|
|Market Cap (in $M):||200||P/FCF||0||0|
|Net Debt (in $M):||0||EBIT||0||0|
|Borrow Cost:||Tight 15-50% cost|
This isn’t easy to short but there is borrow available. While the borrow is expensive, we think this stock collapses as momentum/the squeeze fades, and the truth about this company is revealed. We also believe the company will have to take a large write down, raise capital and if the SEC or Nasdaq investigate they will find lots of issues.
Ominto Inc. (OMNT) appears to us to be one of the most obvious frauds we have seen in some time. Putting aside that it trades at a crazy valuation (9x revenue, loses money), has a bad business model (an MLM) and likely needs capital, we believe OMNT may have engaged in fraudulent transactions that, among other things, enabled the company to get a Nasdaq uplisting which, among other things, triggered a multi-million dollar bonus for the CEO. The stock is up 185% YTD.
OMNT is a multi-level marketing firm that lets users get cash bank from using the OMNT (or Dubli) website to make online purchases. Like most MLMs, the company makes most of its money from selling membership subscriptions.
The key to our short thesis is a transaction OMNT closed on December 13, 2016 in which OMNT exchanged 2.4 million shares of stock that were valued at $4 per share (and some other consideration) to acquire a 40% interest in a Danish animation company named Lani. 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), Lani got a going concern from its auditors and it was revealed that 2016 revenues were only $132k, 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? Is OMNT’s management/BOD stupid & lazy or did they have ulterior motives or we just failing to understand why this was a good investment?
We also wonder why OMNT also did a stock for stock exchange also on December 13, 2016 in which it exchanged 800k OMNT shares, valued at $4 per share, in exchange for 20% of Quant Systems, an IT consulting firm. This implies a valuation for Quant of $17 million. We see very little rationale for this investment nor have we found anything to justify such a valuation, and the website (http://www.quantsystemsinc.com/) has rather poor English, doesn’t list a contact person in case you wanted to give them any business, shows very little news (nor is there much on a google search), etc.
So, why did OMNT do the Lani and Quant stock for stock investments which valued OMNT at $4 per share and appear to make little strategic or financial sense to us? One possible explanation is that these investments (combined with a small pipe done at $4/share) enabled OMNT to increase its shareholders equity from ($7.5) at Sept 2016 to $6.6 million at December 2016 thereby meeting the $4 million threshold necessary to qualify for a Nasdaq uplisting, which the company received in early march 2017.
There are many other reasons to be wary of this stock:
1) 1) OMNT recently changed auditors from Mayer Hoffman to Morrison Brown Argiz & Farra, LLC (“MBAF”)
a. Anyone ever heard of MBAF???
b. Why chose MBAF whose latest PCAOB report shows they have only 1 issuer audit client https://pcaobus.org/Inspections/Reports/Documents/104-2016-086-Morrison.pdf
c. Did Mayer Hoffman quit because they saw fraud at OMNT?
d. In the May 18, 2017 proxy OMNT stated it was using Mayer Hoffman. But in a subsequent 8k OMNT disclosed that “on May 19, 2017” (the very next day!) OMNT fired Mayer Hoffman and hired MBAF
2) 2) Ole Abildgaard, a big shareholder in both OMNT and Lani has had big legal problems in Denmark and has been involved with other Nasdaq companies that have failed.
3) 3) Although OMNT has been public for many years, it has very few US investors. Its 5 largest holders are in Dubai, Hong Kong, Lebanon, Denmark, Lebanon, respectively
4) 4) OMNT has many ties to Utah and is based in Boca Raton, locations that we believe tend to have a disproportionate number of frauds.
There is much more to the story which we will expand upon if anyone is interested.
Links to documents:
Original pro formas for Lani deal
end of short squeeze, adverse publicity, possible sec/nasdaq investigation