UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015, or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________to ______________.

 

Commission File Number 0-49801

 

OMINTO, INC. 

 

 

(Exact name of registrant as specified in its charter)

 

Nevada		13-4067623
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

1100-112th Avenue NE, Suite 350

Bellevue, WA 98004

(Address of principal executive offices)

 

561-362-2381

(Registrant’s telephone number, including area code)

 

DUBLI, INC.

 

6750 N. Andrews Ave, Suite 200

Ft. Lauderdale, FL 33309

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒   No  ☐

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

(Do not check if a smaller company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

 

The number of shares outstanding of each of the issuer’s classes of stock, as of August 14, 2015 is as follows:

 

Number of shares of Preferred Stock outstanding: 185,000

 

Number of shares of Common Stock outstanding: 537,371,821

 

 

 

TABLE OF CONTENTS

 

		Page
PART I: FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets (unaudited)	3
	Condensed Consolidated Statements of Operations (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)	5
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4	Controls and Procedures	19
PART II: OTHER INFORMATION
Item 1	Legal Proceedings	20
Item 1A	Risk Factors	20
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3	Defaults upon Senior Securities	21
Item 4	Mine Safety Disclosures	21
Item 5	Other Information	21
Item 6	Exhibits	21
SIGNATURES		22

 

 

PART I: FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Ominto, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

		June 30,				September 30,
		2015				2014
		(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	2,433,474			$	2,111,812
Restricted cash			1,267,777				904,465
Other receivables and prepaid expenses			1,083,738				441,153
Deferred costs			6,053,807				3,387,549
Land held for sale			-				1,225,269
Total current assets			10,838,796				8,070,248
Property and equipment, net			1,335,625				1,442,708
Other assets			-				45,045
TOTAL ASSETS		$	12,174,421			$	9,558,001
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accounts payable		$	785,233			$	1,916,297
Amounts payable to Business Associates			2,078,293				1,820,905
Customer deposits			1,608,355				1,054,190
Other payables and accrued liabilities			2,959,728				2,383,661
Note payable			-				500,000
Amounts due to related parties			5,057,055				6,438,948
Deferred subscription fee revenues			12,611,143				6,141,882
Deferred advertising revenues			70,227				1,052,845
Liabilities of discontinued operations			212,347				652,419
TOTAL LIABILITIES			25,382,381				21,961,147
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock
25 million shares authorized, $0.01 par value, 185,000 shares issued and outstanding			1,850				1,850
Common stock
700 million (2015) and 500 million (2014) shares authorized, $0.001 par value, 452 million (2015) and 432 million (2014) shares issued and outstanding			452,371				432,204
Additional paid-in-capital			27,488,664				25,115,841
Accumulated other comprehensive income (loss)			796,279				(353,051	)
Accumulated deficit			(41,947,124	)			(37,599,990	)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)			(13,207,960	)			(12,403,146	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	12,174,421			$	9,558,001

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

Ominto, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended June 30,								Nine Months Ended June 30,
		2015				2014				2015				2014
Revenues:
Business license fees		$	1,218,352			$	390,437			$	3,305,784			$	1,885,386
Membership subscription fees and commission income			3,495,656				470,517				9,074,147				1,235,332
Advertising and marketing programs			51,012				268,045				949,884				268,045
Others			9,776				(36,849	)			21,668				146,594
			4,774,796				1,092,150				13,351,483				3,535,357
Cost of revenues			3,102,014				686,255				8,738,903				1,507,724
Gross income			1,672,782				405,895				4,612,580				2,027,633
Selling, general and administrative expenses			2,989,706				1,924,280				9,265,426				6,642,011
Loss from operations			(1,316,924	)			(1,518,385	)			(4,652,846	)			(4,614,378	)
Interest expense			19,624				10,103				79,820				19,277
Loss before income taxes			(1,336,548	)			(1,528,488	)			(4,732,666	)			(4,633,655	)
Income taxes			-				-				-				-
Loss from continuing operations			(1,336,548	)			(1,528,488	)			(4,732,666	)			(4,633,655	)
Income from discontinued operations, net of taxes			136,641				994,003				385,532				5,268,086
Net income (loss)		$	(1,199,907	)		$	(534,485	)		$	(4,347,134	)		$	634,431
Earnings (loss) per share
Basic and diluted:
Continuing operations		$	0.00			$	0.00			$	(0.01	)		$	(0.01	)
Discontinued operations		$	0.00			$	0.00			$	0.00			$	0.01
Weighted average shares outstanding
Basic and diluted			442,856,852				432,204,678				435,794,422				432,188,306

 

See accompanying notes to condensed consolidated financial statements (unaudited). 

 

 

Ominto, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

		Three Months Ended June 30,								Nine Months Ended June 30,
		2015				2014				2015				2014
Net income (loss)		$	(1,199,907	)		$	(534,485	)		$	(4,347,134	)		$	634,431
Foreign currency translation adjustment			(536,322	)			44,587				1,149,329				(123,695	)
Comprehensive income (loss)		$	(1,736,229	)		$	(489,898	)		$	(3,197,805	)		$	510,736

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

Ominto, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Nine Months Ended June 30,
		2015				2014
Cash flows from operating activities:
Loss from continuing operations		$	(4,732,666	)		$	(4,633,655	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization			156,297				148,940
Stock-based compensation			392,990				476,315
Gain on sale of land			(17,321	)			-
Changes in operating assets and liabilities:
Restricted cash			(363,312	)			85,061
Other receivables and prepaid expenses			(642,585	)			(213,834	)
Deferred costs			(2,666,258	)			(290,460	)
Other assets			45,045				50,432
Accounts payable			(1,131,063	)			1,126,747
Amounts payable to Business Associates			257,388				(1,168,769	)
Customer deposits			554,165				370,295
Other payables and accrued liabilities			576,067				729,098
Amounts due to related parties – services rendered			(381,893	)			973,469
Deferred subscription fee revenues			6,469,261				531,599
Deferred advertising revenues			(982,618	)			(264,559	)
Long term payable			-				150,000
Net cash flows from continuing operations			(2,466,503	)			(1,929,321	)
Income from discontinued operations			385,532				5,268,086
Net change in asset and liabilities of discontinued operations			(440,072	)			(5,356,925	)
Net cash flows from discontinued operations			(54,540	)			(88,839	)
Net cash flows from operating activities			(2,521,043	)			(2,018,160	)
Cash flows from investing activities:
Purchase of equipment and software			(43,912	)			(21,342	)
Proceeds from sale of land			1,242,590				812,537
Net cash flows from investing activities			1,198,678				791,195
Cash flows from financing activities:
Proceeds from common stock issuances			2,000,000				-
Repayment of note payable – related party			(1,000,000	)			-
Repayment of note payable – third party			(500,000	)			-
Proceeds from note payable and advances – related party			-				761,347
Proceeds from note payable – third party			-				500,000
Net cash flows from financing activities			500,000				1,261,347
Effect of exchange rate changes			1,144,027				(123,440	)
Net change in cash and cash equivalents			321,662				(89,058	)
Cash and cash equivalents, beginning of period			2,111,812				131,422
Cash and cash equivalents, end of period		$	2,433,474			$	42,364

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

Ominto, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. The Company

 

On June 26, 2015, the Company changed its name to Ominto, Inc. from DubLi, Inc. Ominto, Inc., (“Ominto,” the “Company,” “we,” or “us”), through its wholly owned subsidiaries, is a global E-commerce Cashback and network marketing company which operates a worldwide shopping portal. We market membership subscriptions directly to consumers and through partnership programs including our network marketing subsidiary. The Company is organized in Nevada and its principal executive offices are located in Bellevue, Washington. The Company’s wholly owned subsidiaries are incorporated in Florida, the British Virgin Islands, Cyprus, the United Arab Emirates, India and Singapore.

 

Our E-commerce Cashback transactions throughout the world are conducted through DubLi.com’s shopping portal websites. Beginning, September 2015, we will add an Ominto.com website which will also offer Cashback transactions. We have a large network of independent Business Associates that sell our E-commerce Cashback products.

 

Effective March 28, 2013 the Company discontinued its auctions program. Prior to March 28, 2013, Ominto’s principal business included reverse auctions conducted online that were designed to: (i) sell its proprietary electronic gift cards; and (ii) enable consumers to purchase merchandise through its shopping portals from online retailers at discount prices.

  

Mr. Michael Hansen, who is a director, has a direct ownership of approximately 79.8 million shares of our common stock and 185,000 shares of our Super Voting Preferred Stock as of June 30, 2015. Each share of our Super Voting Preferred votes as 2,000 shares of common stock. As a result, Mr. Hansen had the power to cast approximately 55% of the votes that could be cast by our stockholders. Accordingly, he has the power to influence or control the outcome of important corporate decisions or matters submitted to a vote of our stockholders, including, but not limited to, increasing the authorized capital stock of the Company, the dissolution or merger of the Company, sale of all of the Company’s assets or changing the size and composition of the Board of Directors.

 

Liquidity

The Company incurred accumulated losses for the period from our inception through June 30, 2015 of approximately $41.9 million. As a result, the Company had stockholders’ equity and working capital deficits of approximately $13.2 million and $14.5 million, respectively, as of June 30, 2015. However, the calculation of working capital deficit includes $12.7 million of deferred revenues resulting from our sales of yearly membership subscriptions which we recognize ratably and which are not subject to a repayment or refund. Our adjusted working capital deficit net of deferred revenues would be $1.9 million.

 

We continue to refine our Cashback product offerings and improve our shopping portal, which places additional demands on future cash flows and may decrease liquidity. Our future liquidity and capital requirements will depend on numerous factors including market acceptance of our shopping portal and revenues generated from our operations, the impact of competitive product offerings, and whether we are successful in acquiring additional customers on a large scale basis through partners. We also intend to increase our efforts to recruit Business Associates; we expect that a larger number of Business Associates will increase sales of our E-commerce Cashback products. The marketing efforts will place additional demands on our cash flows and liquidity. We cannot offer any assurance that we will be successful in generating revenues from operations, adequately addressing competitive pressures, acquiring additional customers through partners or growing our network of Business Associates.

 

On May 12, 2015, the Company sold 20 million shares of common stock at $0.10 per share in a private placement for a total cash consideration of $2 million to two unaffiliated foreign investors. The proceeds were used for working capital.

 

On June 28, 2015, the Company closed the sale of a parcel of land in Dubai to an unaffiliated purchaser for approximately $1.2 million and did not realize any significant gain on the disposal.

 

As of June 30, 2015, we owed Mr. Hansen a total of approximately $4.8 million in loans, advances and deferred salary for services rendered. Mr. Hansen has also provided a revolving loan commitment to fund up to $5 million through December 31, 2015; $3.5 million is available to be drawn down and $1.5 million has been borrowed. During July and August 2015, the Company made a total cash repayment of $2.5 million to Mr. Hansen for amounts due to him on the unsecured note, advances and services rendered. In addition, $2 million of advances from Mr. Hansen were converted to 20 million shares of common stock at $0.10 per share.

 

On August 13, 2015, the Company sold 20 million shares of common stock at $0.10 per share for a total cash consideration of $2 million to a former substantial stockholder. In conjunction with the sale, a warrant was also issued for the purchase of up to 25 million shares of common stock at $0.10 per share, exercisable for a period of one year from the date of issuance of the warrant.

 

 

On August 13, 2015, the Company sold 5 million shares of common stock at $0.10 per share in a private placement for a total cash consideration of $0.5 million to a former lender to the Company. In conjunction with the sale, a warrant was also issued for the purchase of up to 5 million shares of common stock at $0.05 per share, exercisable for a period of sixty days from the date of issuance of the warrant.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of Management, are necessary to fairly present the Company’s financial position, results of operations and cash flows as of and for the periods presented. The results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending September 30, 2015.

 

These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014.

 

The condensed consolidated financial statements include the accounts of Ominto, Inc. and its subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

 

Use of Estimates

The preparation of these condensed consolidated financial statements, in conformity with US GAAP requires Management to make estimates and assumptions that affected the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates.

 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU 2014-09 is effective for annual periods beginning after December 15, 2017 and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted as of the effective date. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15 Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 requires that for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.

 

In November 2014, the FASB issued Accounting Standards Update No. ASU 2014-17 Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force) (“ASU 2014-17”).  This ASU 2014-17 provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity.   The amendments in ASU 2014-17 are effective November 18, 2014 and an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event.  The effects of ASU 2014-17 will depend on any future events whereby we obtain control of an entity and elect to apply pushdown accounting.

 

 

In January 2015, the FASB issued Accounting Standards Update No. 2015-01 Income Statement -Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”). This ASU 2015-01 is part of the FASB’s initiative to reduce complexity in accounting standards and eliminates from US GAAP the concept of extraordinary items, which were previously required to be segregated from the results of ordinary operations and shown separately in the income statement, net of tax, after income from continuing operations. Entities were also required to disclose applicable income taxes for the extraordinary item and either present or disclose earnings-per-share data applicable to the extraordinary item. Items which are considered both unusual and infrequent will now be presented separately within income from continuing operations in the income statement or disclosed in notes to the financial statements. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Companies may apply ASU 2015-01 prospectively, or may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02 Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). This ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

 

Foreign Currency

Financial statements of foreign subsidiaries operating in other than highly inflationary economies are translated at period-end exchange rates for assets and liabilities and historical exchange rates during the period for income and expense accounts. The resulting translation adjustments are recorded within accumulated other comprehensive income or loss. Financial statements of subsidiaries operating in highly inflationary economies are translated using a combination of current and historical exchange rates and any translation adjustments are included in current earnings. Gains or losses resulting from foreign currency transactions are recorded in operating expense. The Company has no subsidiaries operating in highly inflationary economies.

 

In accordance with Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters, companies with foreign operations or foreign currency transactions are required to prepare the statement of cash flows using the exchange rates in effect at the time of the cash flows. The Company uses an appropriately weighted average exchange rate for the period for translation if the result is substantially the same as if the rates at the dates of the cash flows were used. The condensed consolidated statement of cash flows reports the effect of exchange rate changes on cash balances held in foreign currencies as a separate part of the reconciliation of the change in cash and cash equivalents during the period.

 

Earnings (Loss) per Share

The Company computes basic earnings (loss) per share by dividing the income (loss) attributable to holders of common stock for the period by the weighted average number of shares of common stock outstanding during the period. The potential impact of all common stock equivalents were excluded from the number of shares outstanding used for purposes of computing net loss per share as the impact of such equivalents was anti-dilutive due to the loss from continuing operations. Potential dilutive securities, which consisted of outstanding stock options and other compensation arrangements not included in dilutive weighted average shares for the three months ended June 30, 2015 and 2014 were approximately 117,000 and nil, respectively, and for the nine months ended June 30, 2015 and 2014, were approximately 13,000 and 200,000, respectively.

 

Segment Policy

The Company derives its revenues from the E-Commerce cashback and Memberships segment which includes business license fees, membership subscription fees, commission income, and, advertising and marketing programs; and Auctions segment (reported as discontinued operations) as described in Note 12 - Segment Information.

 

3. Restricted Cash

 

Restricted cash represents chargeback reserves held by the Company’s credit card processor. Amounts of restricted cash held, by type of currency were as follows:

 

		June 30,				September 30,
		2015				2014
Euro		$	119,218			$	206,312
Australian Dollar			15,988				77,563
United States Dollar			1,132,571				620,590
Total		$	1,267,777			$	904,465

  

 

4. Deferred Costs

 

Deferred costs represent commission costs which are directly related to: (i) unearned subscription fees which are expensed ratably over the subscription periods; and (ii) advertising and marketing programs which are expensed when all services and obligations are fulfilled. Deferred costs expensed are included in cost of revenues.

 

5. Land Held for Sale

 

		June 30,				September 30,
		2015				2014
Cost		$	-			$	2,114,412
Less: Valuation allowance			-				(889,143	)
		$	-			$	1,225,269

  

On August 14, 2012, the Company acquired two mixed-use parcels of vacant land in Dubai, United Arab Emirates at a fair value of approximately $3.5 million. During fiscal 2013, the carrying value of approximately $3.5 million exceeded its revised fair value and as a result the carrying value was reduced to its new fair value of approximately $2 million. On March 12, 2014, the Company disposed of the first parcel of land for a cash consideration which equaled to its carrying value of approximately $0.8 million. Upon completion of the sale of the first parcel, the cost of the second parcel was recorded at approximately $2.1 million less a valuation allowance of approximately $0.9 million.

 

On February 9, 2015, the Company entered into a Property Sale Agreement – Memorandum of Understanding for the sale of the second parcel with an unaffiliated third party for approximately $1.2 million. The transaction closed on June 28, 2015 and the gain on sale of approximately $17,000 was recorded in selling, general and administration expenses.

 

6. Property and Equipment

 

Property and equipment comprised the following:

 

		June 30,				September 30,
		2015				2014
Land:
Held for sales incentives		$	3,562,500			$	3,562,500
Less: Valuation allowance			(2,687,752	)			(2,687,752	)
			874,748				874,748
Computers and equipment			346,491				308,004
Computer software			690,565				690,565
Furniture and fixtures			108,230				102,805
			1,145,286				1,101,374
Accumulated depreciation			(684,409	)			(533,414	)
			460,877				567,960
Total		$	1,335,625			$	1,442,708

  

Land Held for Sales Incentives 

The Company acquired a land parcel consisting of 15 lots in the Cayman Islands in March 2010. As of June 30, 2015, the land value of approximately $0.9 million consisted of the contract price and land filled cost of approximately $3.6 million less a valuation allowance of approximately $2.7 million that was based on Management’s evaluation of the estimated fair value.

 

The investment in the land parcel in the Cayman Islands is intended to provide incentive rewards to the best performing DubLi Business Associates upon attaining certain performance objectives.

 

Depreciation

Depreciation expense was $51,721 and $49,653, for the three months ended June 30, 2015 and 2014, respectively, and $156,297 and $148,940 for the nine months ended June 30, 2015 and 2014, respectively.

 

 

7. Amounts Due to Related Parties

 

Amounts due to related parties comprised the following:

 

		June 30,				September 30,
		2015				2014
Unsecured note payable to Mr. Hansen		$	1,500,000			$	2,500,000
Amounts due for advances by Mr. Hansen			2,566,735				2,566,735
Amounts due for services rendered			990,320				1,372,213
		$	5,057,055			$	6,438,948

  

The unsecured note payable to Mr. Hansen amounting to $1.5 million as of June 30, 2015 will mature on December 31, 2015 and carries interest at the rate of 6% per annum. On October 17, 2014, the Company repaid the principal amount of $1 million borrowed during fiscal 2013.

 

During July and August 2015, the Company made a total cash repayment of $2.5 million to Mr. Hansen for amounts due to him on the unsecured note, advances and services rendered. In addition, $2 million of advances from Mr. Hansen were converted to 20 million shares of common stock at $0.10 per share.

 

Amounts due for services rendered are comprised of accrued compensation due to the officers of the Company. The amounts due for advances and services rendered are non-interest bearing and have no terms of repayment.

 

8. Discontinued Operations

 

The Company discontinued all auctions activities effective March 28, 2013. As a result, the operating results for the auctions program have been reclassified to income from discontinued operations in the condensed consolidated statements of operations.

 

During the three months ended June 30, 2015 and 2014, income from discontinued operations, net of taxes recognized from Credits breakage amounted to approximately $137,000 and $994,000, respectively, and during the nine months ended June 30, 2015 and 2014 amounted to approximately $0.4 million and $5.3 million, respectively. All the costs associated with the Credits have been fully expensed as of the effective date of the termination.

 

Included in liabilities of discontinued operations at June 30, 2015 and September 30, 2014 are unused Credits of approximately $0.2 million and $0.7 million, respectively.

 

9. Income Taxes

 

We conduct business globally and operate in a number of foreign jurisdictions in addition to the United States. For the three months and nine months ended June 30, 2015 and 2014, our reported income tax rate was lower than the US federal statutory rate primarily due to lower income tax rates in the foreign jurisdictions where we operate, and as a result of net income or losses for the periods, the utilization of net operating loss carry-forwards and the valuation allowance against deferred tax assets.

 

10. Common Stock

 

As of June 30, 2015, a total of approximately 3.8 million shares were committed for issuance and reflected as issued on the books of the Company, but stock certificates were not issued due to certain administrative and documentation requirements. The shares of common stock were in respect of the following: (a) the receipt of cash proceeds from an investor for $6,000, or $0.10 per share, (b) the receipt of cash proceeds totaling approximately $294,000 from the exercise of stock options at a price of $0.15 per share, (c) the issuance of a stock award pursuant to a consulting agreement valued at $95,000 or $0.19 per share, (d) the payment of bonus incentive for $100,000 or $0.09 per share, and (e) the issuance of stock for services amounting to $25,000 or $0.15 per share. Certificates for these shares committed for issuance are expected to be issued during fiscal year 2015.

 

On June 9, 2015, the Company’s stockholders approved to increase the number of: (i) shares of common stock authorized for issuance from 500 million to 700 million, and (ii) shares of common stock reserved for issuance under the Company’s Amended and Restated 2010 Omnibus Equity Compensation Plan (“Omnibus Plan”) from 50 million to 150 million.

 

 

11. Stock-Based Compensation

 

On June 9, 2015, the Company’s stockholders approved an increase of shares of common stock reserved for issuance under the Company’s Omnibus Plan from 50 million to 150 million. The Omnibus Plan’s participants include board members, executives, employees and certain consultants and advisers of the Company and the Omnibus Plan has been implemented in order to attract, incentivize and retain highly qualified individuals and keep the Company competitive with other companies with respect to executive compensation. Awards under the Omnibus Plan may be made to participants in the form of (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) deferred stock; (vi) stock awards; (vii) performance shares; (viii) other stock-based awards; and (ix) other forms of equity-based compensation as may be provided and are permissible under the Omnibus Plan and the law.

 

Stock-based compensation expense for the three months ended June 30, 2015 and 2014 was $355,748 and $73,782, respectively, and for the nine months ended June 30, 2015 and 2014, was $392,990 and $476,315, respectively. During the three months ended June 30, 2015, the Company granted 22 million stock options to two current employees and one former employee. Unamortized stock option compensation expense at June 30, 2015 was approximately $3.1 million and is expected to be recognized over a period of 4.9 years.

 

12. Segment Information

 

The Company divides its product and service lines into two segments: (i) E-Commerce and Memberships segment which includes business license fees, membership subscription fees, commission income, and, advertising and marketing programs; and (ii) Auctions segment (reported as discontinued operations).

 

		Three Months Ended June 30,								Nine Months Ended June 30,
		2015				2014				2015				2014
E-Commerce and memberships
Revenues		$	4,774,796			$	1,092,150			$	13,351,483			$	3,535,357
Cost of revenues			3,102,014				686,255				8,738,903				1,507,724
Gross income from continuing operations		$	1,672,782			$	405,895			$	4,612,580			$	2,027,633
Discontinued operations
Revenues		$	136,641			$	994,003			$	385,532			$	5,268,086
Cost of revenues			-				-				-				-
Income from discontinued operations, net of taxes		$	136,641			$	994,003			$	385,532			$	5,268,086

 

The total revenues recorded in our four geographic regions are summarized as follows:

 

		Three Months Ended June 30,								Nine Months Ended June 30,
		2015				2014				2015				2014
Revenues:
European Union		$	817,428			$	926,307			$	2,317,928			$	2,949,858
North America			2,919,041				945,993				8,491,876				4,207,689
Australia			202,785				77,437				598,903				268,004
Global			972,183				136,416				2,328,308				1,377,892
		$	4,911,437			$	2,086,153			$	13,737,015			$	8,803,443
Represented by revenues from:
Continuing operations		$	4,774,796			$	1,092,150			$	13,351,483			$	3,535,357
Discontinued operations			136,641				994,003				385,532				5,268,086
		$	4,911,437			$	2,086,153			$	13,737,015			$	8,803,443

 

 

13. Subsequent Events

 

Repayment to Related Parties

 

During July and August 2015, the Company made a total cash repayment of $2.5 million to Mr. Hansen for amounts due to him on the unsecured note, advances and services rendered. In addition, $2 million of advances from Mr. Hansen were converted to 20 million shares of common stock at $0.10 per share.

 

Sale of Securities

 

On August 13, 2015, the Company sold 20 million shares of common stock at $0.10 per share for a total cash consideration of $2 million to a former substantial stockholder. In conjunction with the sale, a warrant was also issued for the purchase of up to 25 million shares of common stock at $0.10 per share, exercisable for one year from the date of issuance of the warrant.

 

On August 13, 2015, the Company sold 5 million shares of common stock at $0.10 per share in a private placement for a total cash consideration of $0.5 million to a former lender to the Company. In conjunction with the sale, a warrant was also issued for the purchase of up to 5 million shares of common stock at $0.05 per share, exercisable for a period of sixty days from the date of issuance of the warrant.

 

Grant of Securities

 

On August 14, 2015, the Company granted its founder, and former President and Chief Executive Officer, Michael Hansen, 40 million shares of common stock which shares will be legended as restricted securities. The issuance of shares to Mr. Hansen is to recognize his contributions to the Company and the shares are fully vested. The Company’s Board of Directors had approved issuance of 35 million shares of its common stock in 2014, and was unable to issue such shares to Mr. Hansen for reasons unrelated to Mr. Hansen’s outstanding service to the Company. The current board evaluated the assistance that Mr. Hansen provided outside of his employment contract that included loaning necessary funds to the Company and arranging for Company financing when the Company had no collateral or commercial borrowing power. These services enabled the Company to remain in business.

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Introductory Note

Concerning Forward-Looking Statements

 

The discussion contained in this Quarterly Report on Form 10-Q (“Report”) under the Securities Exchange Act of 1934 as amended (“Exchange Act”), contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “believe,” and similar language, including those set forth in the discussions under “Notes to Condensed Consolidated Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as those discussed elsewhere in this Report. The forward-looking statements reflect our current view about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. 

 

The following important factors could prevent us from achieving our goals and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements:

 

●	our inability to sell enough Cashback products, generate enough customers or enough purchasing activity for our shopping portal;

●	our inability to maintain a growing base of Business Associates;
●	our  inability to generate sufficient cash flows from operations or to secure sufficient capital to enable us to maintain our current operations or support our intended growth;

●	our failure to adapt to technological changes;

●	increased competition;

●	increased operating costs;

●	changes in legislation applicable to our business;

●	our failure to improve our internal controls; and

●	our failure to maintain registration of shares of our Common Stock under the Exchange Act.

 

For information concerning these factors and related matters, see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Report, and the following sections of our Annual Report on Form 10-K for the year ended September 30, 2014: Item 1A “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. However, other factors besides those referenced could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us herein speak as of the date of this Report. We do not undertake to update any forward-looking statement, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Introduction

 

The following discussion and analysis summarizes the significant factors affecting: (i) our condensed consolidated results of operations for the three months and nine months ended June 30, 2015 compared to the three months and nine months ended June 30, 2014; and (ii) financial liquidity and capital resources. This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes included in this Report. 

 

Overview

 

Ominto, Inc. has created a framework for attracting and maintaining customers around the world through an E-commerce Cashback based shopping and travel community. Ominto adapts to changes in the E-commerce marketplace, has established a global shopping portal and has expertise in understanding and capitalizing on international economic trends and changing consumer behaviors.

 

Ominto is a global E-commerce Cashback and network marketing company that operates an online shopping portal through which our customers search and purchase products offered by various online stores, including consumer products, travel related products and services. Our worldwide online transactions are conducted through the DubLi.com shopping portal. We have a large international network of independent Business Associates that sell and use our various E-commerce Cashback products.

 

During an October 2014 sales conference, the Company introduced a promotional campaign which offered additional commission incentives to Business Associates for sales of membership subscriptions through their respective network of Business Associates. The promotional campaign generated increased sales activity and as a result we reported an increase in revenues and a corresponding increase in cost of revenues (principally commissions) during the three months and nine months ended June 30, 2015.

 

 

During the three months and nine months ended June 30, 2015 and 2014, our revenues from continuing operations were generated primarily from (a) business license fees paid by Business Associates and partner program participants; (b) membership subscription fees; (c) commission income from participating online shops and stores affiliated with our online shopping portal arising from the purchase transactions our customers generated; and (d) advertising and marketing programs. Our revenues from discontinued operations during the three months and nine months ended June 30, 2015 and June 30, 2014 were recognized from Credits breakage associated with inactive Business Associates.

 

The components of revenues for the three months and nine months ended June 30, 2015 are summarized as follows:

 

		June 30, 2015
		Three Months				Nine Months
		Ended				Ended
E-Commerce and Memberships
Business license fees		$	1,218,352			$	3,305,784
Membership subscription fees and commission income			3,495,656				9,074,147
Advertising and marketing programs			51,012				949,884
Other			9,776				21,668
			4,774,796				13,351,483
Discontinued operations			136,641				385,532
Total revenues		$	4,911,437			$	13,737,015

  

Business license fees arise from fees paid by our Business Associates and our partner program participants. The fees from Business Associates enable them to sell Ominto’s products. Fees paid by our partners allow them to receive either a white label solution or a referral program that their customers or donors can use to make cashback purchases through our online shopping portal. The partner earns commissions derived from membership subscription fees as well as a portion of the commission income received from our affiliates. Generally, our partner program participants pay a monthly maintenance fee to remain as an active member.

 

Effective April 2014, our Business Associates were required to purchase our membership subscription products in the form of qualifying vouchers or membership packages for Business Associates or membership packages for Ominto’s customers as described below. Prior to this they paid a monthly maintenance fee.

 

Membership subscription fees are paid by customers to receive a higher level of cashback (compared to free users) when they use our cashback shopping portal to make purchases. We offer choices of a free membership package and two different paid membership subscription packages (Premium and V.I.P.), to customers that enable them to earn cash back from all the purchases that they make online through our shopping portal. The Premium and V.I.P. membership subscription packages allow our customers to earn a higher percentage of cashback on their purchases. For the Premium members, we charge a monthly subscription fee and for the V.I.P. members we charge an annual subscription fee.

 

Commission income is the amounts we receive from affiliates for purchases made on our shopping portal. We share this commission income with our customers in the form of cashback.

 

Our network marketing organization of Business Associates is represented in approximately 100 countries throughout the world. Our Business Associates market a variety of Cashback products to their customers, many of whom are also recruited to become Business Associates themselves. Business Associates earn commissions both on Premium and V.I.P. products that they sell directly, as well as on “downstream” sales of products made by Business Associates that they recruit into the marketing network. Business Associates also earn commissions on purchase transactions from their customers and downstream customers who shop on our shopping portal.

 

Trends in Our Business

 

We continue to focus our resources on potentially more profitable programs related to our E-commerce shopping portal. We believe that shopping transactions continue to shift from traditional to online retailers as the digital economy evolves. This shift has enabled us to provide a continued growth in revenue. However, our revenue growth rate to date may not be sustainable due to factors, including increasing competition, and increasing maturity of the online shopping portal market. We plan to continue to invest in our shopping portal and increase our customer base through partner programs and our Business Associates, but cannot provide any assurance that such investments will result in increased revenues or net income.

 

 

In order to increase the sale of our Cashback products, we are working to add dedicated private-label Cashback shopping portals that businesses can use to offer consumer products, travel related products and services, which will increase the number of consumers purchasing products and services through our offerings. We have also begun to implement incentive offerings to attract new customers to increase revenues from commissions as well as to introduce new advertising programs to increase our advertising revenues.

 

Traditional retail seasonality has affected our results of operations, and is likely to continue to do so. Online shopping generally slows during the summer months, and shopping (whether traditional or E-commerce) typically increases significantly during the holiday season in the fourth quarter of each calendar year. These seasonal trends have caused, and will likely continue to cause fluctuations in our quarterly results.

 

Increasing our revenues involves investment in our data centers, corporate facilities, information technology infrastructure, and human resources. We expect the following to be important components in our business strategy: (i) “Partner” programs whereby we partner with large retail customer bases interested in earning additional revenues by co-branding our shopping and travel related shopping portal; and (ii) expansion in new markets and countries. We expect that the gross cost of revenues will increase and may also increase as a percentage of revenues in future periods, primarily due to forecasted increases in costs, including customer acquisition costs, data center costs, credit card and other transaction fees, and content acquisition costs.

 

As we expand our shopping programs and other products to international markets, we continue to increase our exposure to fluctuations in foreign currency to US dollar exchange rates.

 

Results of Operations

 

Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014

 

Consolidated Results

 

Net loss for the three months ended June 30, 2015 and 2014 were approximately $1.2 million and $0.5 million, respectively. The increase in the net loss was primarily due to a reduction in income from discontinued operations of approximately $0.9 million. Loss from continuing operations decreased $0.2 million. Further discussions on the results from continuing operations and discontinued operations are provided in the following paragraphs.

 

Continuing Operations

 

Revenues were approximately $4.8 million and $1.1 million for the three months ended June 30, 2015 and 2014, respectively. The increase was primarily due to an increase in: (i) business license fees from Business Associates and partner program participants as a result of higher Business Associates and partner headcounts; (ii) membership subscription fees from increased sales of membership packages partly from an ongoing promotional campaign undertaken during October 2014; and (iii) commission income received from online shops and stores as a result of higher purchase transactions by our customers shopping through our shopping portal.

 

Gross income was approximately $1.7 million and $0.4 million for the three months ended June 30, 2015 and 2014, respectively. The increase was primarily due to higher revenues recorded during the three months ended June 30, 2015 as described above. There was no material variance in the gross income as a percentage of revenues.

 

Selling, general and administrative (“SGA”) expenses were approximately $3.0 million and $1.9 million for the three months ended June 30, 2015 and 2014, respectively. The increase was primarily due to an increase of $0.4 in outside service fees and $0.8 million in payroll costs. Details of our SGA expenses are summarized as follows:

 

		For the three months ended June 30,
(All amounts in $ thousands)		2015				2014				Change
Advertising and marketing costs		$	24			$	17			$	7
Depreciation			51				50				1
Outside service fees			867				486				381
Payroll costs			1,881				1,046				835
Rent and office expenses			207				51				156
Banking and processing fees			204				119				85
Foreign exchange			(381	)			5				(386	)
Travel expenses and others			136				150				(14	)
Total		$	2,989			$	1,924			$	1,065

 

 

Discontinued Operations

 

The Company recognized Credits breakage associated with inactive Business Associates during the three months ended June 30, 2015 of $0.1 million as compared to $1.0 million for the three months ended June 30, 2014. The decrease was due to fewer inactive Business Associates that met the criteria of recognition of revenue for breakage.

 

Foreign Currency Translation Adjustment

 

Our net revenues and related expenses generated from international locations are denominated in the functional currencies of the local countries, primarily in Euros. The results of operations and certain of our intercompany balances associated with our international locations are exposed to foreign exchange rate fluctuations. The consolidated statements of operations of our international subsidiaries are translated into US dollars at the average exchange rates in each applicable period. To the extent the US dollar weakens against foreign currencies, this translation methodology results in these foreign current transactions increasing the revenues, operating expenses and net income or loss. Similarly, our consolidated revenues, operating expenses and net income or loss will decrease when the US dollar strengthens against foreign currencies.

 

The US dollar average rate weakened against the Euro during the three months ended June 30, 2015 which resulted in a loss on translation of approximately $0.5 million as compared to a strengthened US dollar for the three months ended June 30, 2014 which resulted in a gain on translation of approximately $45,000.

 

Nine Months Ended June 30, 2015 Compared to Nine Months Ended June 30, 2014

 

Consolidated Results

 

Net loss for the nine months ended June 30, 2015 was approximately $4.3 million as compared to a net income of approximately $0.6 million for the nine months ended June 30, 2014. The increase in net loss was primarily due to a reduction in income from discontinued operations of approximately $4.9 million and an increase in loss from continuing operations of approximately $0.1 million. Further discussions on the results from continuing operations and discontinued operations are provided in the following paragraphs.

 

Continuing Operations

 

Revenues were approximately $13.4 million and $3.5 million for the nine months ended June 30, 2015 and 2014, respectively. The increase was primarily due to an increase in: (i) business license fees from Business Associates and partner program participants as a result of higher Business Associates and partner headcounts; (ii) membership subscription fees from increased sales of membership packages partly from a promotional campaign to Business Associates undertaken during October 2014; (iii) commission income received from online shops and stores as a result of higher purchase transactions by our customers shopping through our shopping portal; and (iv) revenues recognized from breakage associated with inactive Business Associates under the advertising and marketing programs.

 

Gross income was approximately $4.6 million and $2.0 million for the nine months ended June 30, 2015 and 2014, respectively. The increase was primarily due to higher revenues recorded during the nine months ended June 30, 2015 as described above. During the nine months ended June 30, 2015 and 2014, gross income as a percentage of revenues (after adjusting for certain components of non-commission revenues of approximately $1.0 million for the nine months ended June 30, 2014) were approximately 34% and 38%, respectively. The decrease was primarily due to a promotional campaign the Company undertook which resulted in an additional bonus commission payout to Business Associates during the nine months ended June 30, 2015. No comparable promotion was undertaken during the nine months ended June 30, 2014.

 

 

SGA expenses were approximately $9.3 million and $6.6 million for the nine months ended June 30, 2015 and 2014, respectively. The increase was primarily due to approximately: (i) $1.2 million in outside service fees relating to audit, legal, IT and other business consultants; (ii) $0.8 million in banking and processing fees as a result of higher transactions processed, and (iii) $0.9 million in payroll costs. Details of our SGA expenses are summarized as follows:

 

		For the nine months ended June 30,
(All amounts in $ thousands)		2015				2014				Change
Advertising expenses		$	41			$	155			$	(114	)
Depreciation			156				149				7
Outside service fees			2,769				1,572				1,197
Payroll costs			4,408				3,469				939
Rent and office expenses			490				598				(108	)
Banking and processing fees			1,161				386				775
Foreign exchange			(368	)			(36	)			(332	)
Travel expenses and others			608				349				259
Total		$	9,265			$	6,642			$	2,623

 

Discontinued Operations

 

Income from discontinued operations was approximately $0.4 million and $5.3 million for the nine months ended June 30, 2015 and 2014, respectively. The decrease was primarily due to lower revenues recognized for Credits breakage associated with inactive Business Associates.

 

Foreign Currency Translation Adjustment

 

Our net revenues and related expenses generated from international locations are denominated in the functional currencies of the local countries, primarily in Euros. The results of operations and certain of our intercompany balances associated with our international locations are exposed to foreign exchange rate fluctuations. The consolidated statements of operations of our international subsidiaries are translated into US dollars at the average exchange rates in each applicable period. To the extent the US dollar weakens against foreign currencies, this translation methodology results in these foreign current transactions increasing the revenues, operating expenses and net income or loss. Similarly, our consolidated revenues, operating expenses and net income or loss will decrease when the US dollar strengthens against foreign currencies.

 

The US dollar average rate strengthened against the Euro during the nine months ended June 30, 2015 which resulted in a gain on translation of approximately $1.1 million as compared to a weakened US dollar for the nine months ended June 30, 2014 which resulted in a loss on translation of approximately $0.1 million.

 

Liquidity and Capital Resources

 

Liquidity

 

We incurred accumulated losses for the period from our inception through June 30, 2015 of approximately $42 million. We continue to require additional financing to meet our working capital and capital expenditures requirements. We can provide no assurance that such additional financing will be available in an amount or on terms acceptable to us. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to us, we will be unable to execute upon our business plan and pay our costs and expenses as they are incurred, which could have a material, adverse effect on our business, financial condition and results of operations.

 

We continue to refine our Cashback product offerings and improve our shopping portal, which places additional demands on future cash flows and may decrease liquidity. Our future liquidity and capital requirements will depend on numerous factors including market acceptance of our shopping portal and revenues generated from our operations, the impact of competitive product offerings, and whether we are successful in acquiring additional customers on a large scale basis through partner. We also intend to increase our efforts to recruit Business Associates; we expect that a larger number of Business Associates will increase sales of our E-commerce Cashback products. The marketing efforts will place additional demands on our cash flows and liquidity. We cannot offer any assurance that we will be successful in generating revenues from operations, adequately addressing competitive pressures, acquiring additional customers through partners or growing our network of Business Associates.

 

On May 12, 2015, the Company sold 20 million shares of common stock at $0.10 per share in a private placement for a total cash consideration of $2 million to two unaffiliated foreign investors. The proceeds were used for working capital.

 

On August 13, 2015, the Company sold 20 million shares of common stock at $0.10 per share for a total cash consideration of $2 million to a former substantial stockholder. In conjunction with the sale, a warrant was also issued for the purchase of up to 25 million shares of common stock at $0.10 per share, exercisable for a period of one year from the date of issuance of the warrant.

 

On August 13, 2015, the Company sold 5 million shares of common stock at $0.10 per share in a private placement for a total cash consideration of $0.5 million to a former lender to the Company. In conjunction with the sale, a warrant was also issued for the purchase of up to 5 million shares of common stock at $0.05 per share, exercisable for a period of sixty days from the date of issuance of the warrant.

 

 

As of June 30, 2015, we owed Mr. Hansen a total of approximately $4.8 million in loans, advances and deferred salary for services rendered. Mr. Hansen has also provided a revolving loan commitment to fund the Company up to $5 million through December 31, 2015; $3.5 million is available to be drawn down and $1.5 million has been borrowed. During July and August 2015, the Company made a total cash repayment of $2.5 million to Mr. Hansen for amounts due to him on the unsecured note, advances and services rendered. In addition, $2 million of advances from Mr. Hansen were converted to 20 million shares of common stock at $0.10 per share.

 

The Company closed the sale of a parcel of land in Dubai for approximately $1.2 million. The proceeds were primarily used for working capital.

 

Cash in Foreign Subsidiaries

 

The Company has significant operations outside the United States. As a result, cash generated by and used in the Company's foreign operations is used only in amounts sufficient to pay general and administrative expenses in the US, or to fund certain US operational costs. As of June 30, 2015, the Company held approximately $1.8 million of unrestricted and approximately $1.3 million of restricted cash in foreign subsidiaries.

 

Should foreign cash be repatriated, the Company will be subject to US tax at the applicable US federal statutory rate on the amount treated as a dividend for US income tax purposes. Dividend treatment will largely be the result of the collective financial position of the foreign subsidiaries at the time of repatriation. Any US income tax attributable to repatriated earnings may be offset by foreign income taxes paid on such earnings. Due to the significance of our foreign operations, the Company does not presently foresee a need to repatriate foreign cash in excess of our US funding needs.

 

Subsequent Events

 

Repayment to Related Parties

 

During July and August 2015, the Company made a total cash repayment of $2.5 million to Mr. Hansen for amounts due to him on the unsecured note, advances and services rendered. In addition, $2 million of advances from Mr. Hansen were converted to 20 million shares of common stock at $0.10 per share.

 

Sale of Securities

 

On August 13, 2015, the Company sold 20 million shares of common stock at $0.10 per share for a total cash consideration of $2 million to a former substantial stockholder. In conjunction with the sale, a warrant was also issued for the purchase of up to 25 million shares of common stock at $0.10 per share, exercisable for a period of one year from the date of issuance of the warrants.

 

On August 13, 2015, the Company sold 5 million shares of common stock at $0.10 per share in a private placement for a total cash consideration of $0.5 million to a former lender to the Company. In conjunction with the sale, a warrant was also issued for the purchase of up to 5 million shares of common stock at $0.05 per share, exercisable for a period of sixty days from the date of issuance of the warrant.

 

Grant of Securities

 

On August 14, 2015, the Company granted its founder, and former President and Chief Executive Officer, Michael Hansen, 40 million shares of common stock which shares will be legended as restricted securities. The issuance of shares to Mr. Hansen is to recognize his contributions to the Company and the shares are fully vested. The Company’s Board of Directors had approved issuance of 35 million shares of its common stock in 2014, and was unable to issue such shares to Mr. Hansen for reasons unrelated to Mr. Hansen’s outstanding service to the Company. The current board evaluated the assistance that Mr. Hansen provided outside of his employment contract that included loaning necessary funds to the Company and arranging for Company financing when the Company had no collateral or commercial borrowing power. These services enabled the Company to remain in business.

 

Off-Balance Sheet Arrangements

 

At June 30, 2015 and 2014, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information to be reported under this item is not required of smaller reporting companies.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our Management, including our principal executive officer and our principal financial and accounting officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15 (e) under the Exchange Act) as of the end of the period covered by this Report. Based on the foregoing, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms, and (ii) accumulated and communicated to Management, including the principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

 

 

 

Changes in Internal Control over Financial Reporting

 

As previously reported in our Form 10-K for the year ended September 30, 2014, as a result of our principal executive officer’s and principal financial and accounting officer’s assessment of the effectiveness of our internal control over financial reporting as of September 30, 2014, we identified the material weaknesses in internal control over financial reporting as of September 30, 2014. These material weaknesses had not been remediated as of June 30, 2015. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

 

Remediation Plans

 

To address the identified material weakness discussed in our Form 10-K for the year ended September 30, 2014, we have taken the following measures:

 

1.	Engaged an internal audit firm to assist with control assessment and remediation;

2.	Commenced a reorganization of our finance, accounting and other support staff to improve work flow and enhance internal controls;

3.	Hired a Director of Compliance to evaluate and implement corrective action on our material weaknesses; and

4.	Hired a Chief Technology Officer to oversee and implement proper internal control over IT and our business operating systems.

 

In addition, we have improved or are in the process of improving our internal controls as follows:

 

Control Environment

 

(a)	We have implemented a whistle-blower program and are in the process of implementing other programs to identify and manage fraud risks;

(b)

Formalized job descriptions have been developed for all finance and accounting personnel that specifically: (i) identify required financial reporting roles, responsibilities, and necessary competencies; and (ii) clarify responsibilities for maintaining our internal controls over financial information; and

(c)	We have increased the utilization of the features and controls provided in our Enterprise Resource Planning (“ERP”) system and reduce the use of spreadsheets.

 

Monitoring of internal control over financial reporting, and period end financial closing

 

(a)	We continue to review and update our policies and procedures with respect to the review, supervision and monitoring of our accounting operations;

(b)	We are completing a risk assessment process in order to improve our monitoring function in conjunction with our ERP system; and

(c)	We are developing forecasts and plans by which our Management can measure achievement against formalized benchmarks.

 

If the remedial measures described above are insufficient to address any of the identified material weaknesses or are not implemented effectively, or additional deficiencies arise in the future, material misstatements in our interim or annual consolidated financial statements may occur in the future and we may continue to be delinquent in our filings. We are currently working to improve and simplify our internal processes and implement enhanced controls, as discussed above, to address the material weaknesses in our internal control over financial reporting and to remedy the ineffectiveness of our disclosure controls and procedures. Key factors in the success of our remediation efforts are our ability to recruit and retain qualified individuals, and to make the investments required to enhance our financial reporting systems. Therefore, the success of our remediation efforts will also be dependent in part upon our ability to obtain sufficient funding. Among other things, any un-remediated material weaknesses could result in material post-closing adjustments in future financial statements.

 

PART II: OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

In the ordinary course of business, the Company and its subsidiaries including its directors and officers may be defendants in or parties to pending or threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants.

 

There were no material legal proceedings during the three months ended June 30, 2015.

 

ITEM 1A.

RISK FACTORS

 

There has been no material change to the risk factors relating to our business as disclosed in our Form 10-K for the year ended September 30, 2014.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On May 12, 2015, the Company sold 20 million shares of common stock at $0.10 per share in a private placement for a total cash consideration of $2 million to two unaffiliated foreign investors. The proceeds were used for working capital.

 

On August 13, 2015, the Company sold 20 million shares of common stock at $0.10 per share for a total cash consideration of $2 million to a former substantial stockholder. In conjunction with the sale, a warrant was also issued for the purchase of up to 25 million shares of common stock at $0.10 per share, exercisable for one year from the date of issuance of the warrant.

 

On August 13, 2015, the Company sold 5 million shares of common stock at $0.10 per share in a private placement for a total cash consideration of $0.5 million to a former lender to the Company. In conjunction with the sale, a warrant was also issued for the purchase of up to 5 million shares of common stock at $0.05 per share, exercisable for a period of sixty days from the date of issuance of the warrant.

 

On August 13, 2015, pursuant to a Conversion Agreement signed between the Company and Michael Hansen, $2 million of advances from Mr. Hansen were converted to 20 million shares of common stock at $0.10 per share.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5.

OTHER INFORMATION

 

On August 14, 2015, the Company granted its founder, and former President and Chief Executive Officer, Michael Hansen, 40 million shares of common stock which shares will be legended as restricted securities. The issuance of shares to Mr. Hansen is to recognize his contributions to the Company and the shares are fully vested. The Company’s Board of Directors had approved issuance of 35 million shares of its common stock in 2014, and was unable to issue such shares to Mr. Hansen for reasons unrelated to Mr. Hansen’s outstanding service to the Company. The current board evaluated the assistance that Mr. Hansen provided outside of his employment contract that included loaning necessary funds to the Company and arranging for Company financing when the Company had no collateral or commercial borrowing power. These services enabled the Company to remain in business. 

 

ITEM 6.

EXHIBITS

 

No.		Description
3.1		Certificate of Amendment to Articles of Incorporation of DubLi, Inc. as filed with the Nevada Secretary of State on June 15, 2015 (incorporated by reference to Exhibit 3.1 included in our Current Report on Form 8-K/A filed on June 19, 2015).
3.2		Certificate of Amendment to Articles of Incorporation of DubLi, Inc. dated June 26, 2015 (incorporated by reference to Exhibit 3.1 included in our Current Report on Form 8-K filed on July 2, 2015).
4.1		Amended and Restated 2010 Omnibus Equity Compensation Plan (incorporated by reference to our DEF 14C filed on May 19, 2015).
10.1		Employment Agreement dated as of May 5, 2015, between DubLi, Inc. and Ivan Braiker.
10.2		Employment Agreement dated as of May 5, 2015, between DubLi, Inc. and Thomas Virgin.
10.3		Separation Agreement and General Release dated May 29, 2015, between DubLi, Inc. and Eric Nelson.
10.4		Stock Purchase Agreement dated as of April 30, 2015 between DubLi, Inc., Rune Evensen and David Hong Chuan Goh.
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
32.1		Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

 

	Ominto, Inc.
Date: August 14, 2015	By:	/s/ IVAN BRAIKER
		Ivan Braiker President and Chief Executive Officer

 

 

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