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Ominto Inc’s (OMNT) questionable Cayman Island transaction

From ValueWalk

Our previous articles on Ominto Inc. ($OMNT) have raised serious questions about its valuation (7x revenue and losing money), the valuation and rationale behind its investments in Lani and Quant (we believe, based on SEC filings, that Lani was worthless at the time of the investment), the quality of OMNT’s auditors (Morrison Brown Argiz & Farra, LLC…have you ever heard of them?), and the legal problems of a major shareholder and the disclosure regarding potential related party transactions.

If regulators and investors didn’t have enough reasons to be concerned about OMNT, they might also examine OMNT’s investment in Cayman Island real estate.  Specifically, why OMNT owns real estate in the Caymans, why the land was acquired in a related party transaction, and why the value of this investment has been written down 75%.

According to SEC filings, OMNT owns a land parcel consisting of 15 undeveloped lots in the Cayman Islands which was acquired in March 2010.  To us, this investment seems even more non-strategic than OMNT’s investments in Lani and Quant.

OMNT claims the land “is intended to provide incentive rewards to the best performing DubLi Network Business Associates upon attaining certain performance objectives.”  We believe this incentive plan is highly unusual.  Even more troubling, in its latest 10k, OMNT acknowledges that it has “not awarded any lots to date.”  So, in the 7 years OMNT has owned these lots and was going to award the lots as incentives, OMNT has not awarded a single lot, not even one!

We believe the value of real estate in the Caymans over the past few years has in general appreciated significantly.  Therefore we wonder why during the same period of time the value of OMNT’s land investment has decreased approximately 75%.  OMNT acquired the property in March 2010.  The book value of the property has been written down from $3.6 million to only $0.9 million, representing a 75% decrease in value.

Given the questionable strategic value and the terrible performance to date, we wonder why OMNT bought the land in the first place?  We note the investment was (yet another) related party transaction.  According to SEC filings, the land appears to have been previously owned by OMNT’s CEO, Michael Hansen, before OMNT acquired it.

Considering this was a related party transaction and the value has been written down significantly, we have to wonder if the land was ever really worth $3.6 million or if OMNT utilized questionable accounting (as we believe they did with the Lani investment) to inflate the value of this asset. 

We remain short OMNT. 

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