Cool Holdings (AWSM): The $16 Million Question
Executive Summary
*Cool took on a whopping $16 million in debt and notes to acquire two money-losing companies.
*Members of Cool’s management had controlling interest at the time those companies, OneClick International and OneClick License, were acquired.
*The company’s nine operating stores last quarter lost $-3.6 million .
*Cool avoids our questions, including: Justify launching paid promotions as you register a $25 million shelf of stock. Please justify this inflated market valuation, plus pending decimation of recent small shareholders.
*Cool loses money on its nine stores, so how can it possibly make money on 200? The company is digging itself a deeper hole.
The $16 Million Question
Um, Cool Holdings ( AWSM ), we’ve got a question.
Why in the world did you pay $16 million for some cellphones and a mountain of debt??
Flash back to October 1, 2017, and we see a key rollup that formed the foundation of Miami, Florida-based Cool Holdings’ current cellphone and computer retail business: Cool rolled up two OneClick companies, ultimately paying $16 million in issued notes and assumed debts.
What did Cool get out of the deal?
Cellphones and other inventory totaled … wait for it …
Wait for it … $2 million . That’s right. Only $2 million in inventory.
“Hey folks,” Cool essentially said to investors, “we plunked down eight times our acquisitions’ inventory. We took on $16 million in debt. Come invest in us!”
Let’s look more closely at the acquired companies’ overall assets. Most assets fell into the category of “Accounts receivable and due from related parties”… a whopping $7 million.
If we were buying “Have I Gotta Deal For You, Inc.,” would we really want to see the majority of assets in the form of accounts that might or might not pay us, plus anticipated money from buddies of Have I Gotta Deal?
In our chart below, we break down the financials.
(Sources: Company SEC filings, TheStreetSweeper (By the numbers: Combined notes totaled $3.3 m ($2.8 + $.5 m); liabilities totaled $12.8m ($12 m + $.8m); $12.8m + $3.3m = $16m)
(Inventory totaled $1.7m + $0.3m = $2 m); (Receivables & due from related parties $6.36 m + $.277 m = $6.6 m); (Goodwill $4.5m + $1.4m = $5.9m)
Consider the second biggest cost: the pulled-out-of-the-air figure of “goodwill.” Goodwill is companies’ guestimate of the value of customer relations, employee relations and other stuff, used to justify the acquisition when they’ve paid a premium. Cool reports an astonishing $6 million “goodwill.”
Meanwhile, Cool’s own filings say they bought just $4.1 million in assets.
If you subtract goodwill, we see the assets add up to a negative … $-1.77 million.
So, Cool paid $16 million for worthless, debt-ridden companies?
So why, oh, why would Cool pay so much for so little ?
The secret’s in their boring filings …
*COOL’S SECRET: THEY’RE US!
Cool paid dearly to acquire companies owned by whom?? ?
Cool management owned both acquisitions, filings show…
OneClick International and OneClick License , linked to predecessor CoolTech Holding, listed managers as Mauricio Diaz, Felipe Rezk, and Carlos Alfredo Carrasco. Mr. Diaz is Cool’s CEO; Mr. Rezk is sales and marketing chief; Mr. Carrasco is finance officer.
The OneClick entities had been incorporated in June 2016 and were losing atrocious amounts of money.
Indeed, by the end of 2017, their combined losses hit about $-8.5 million . Auditors doubted OneClick could continue as a going concern.
Other Cool mergers included InfoSonics, CoolTech, One Click Argentino SRL, and OneClick International. In many cases, Cool Holdings people, including board chairman Andrew DeFrancesco, held positions with those companies.
At the end of 2016, the consolidated losses had hit $-4.4 million .
Today, Cool continues to lose money. Last quarter alone, the company’s nine stores lost $3.6 million .
So, these folks really didn’t have anything to lose – and probably figured they had everything to gain – by pulling together a bunch of broke companies that they already owned or had positions in, and taking the “new” company to the public market.
They cleaned up a mess.
Then Cool paid $415,000 for a promotional campaign – actually claiming expansion and great potential just around the corner - successfully pumping the stock to extreme levels.
Sure, these folks cleaned up their mess.
But they threw it onto the backs of today’s stockholders.
Now, Cool has a $25 million stock registration looming with the potential to water down the shares held by recent stock buyers. A notice of effectiveness is all that’s holding back potential dilution and destruction of recent shareholders’ stock value.
We’ve asked Cool to explain, among other issues: How do you justify these actions? How do you justify this inflated market valuation? How do you justify the coming decimation of the little guys?
*Massive Problem
Cool stock has rocketed on bought-and-paid-for promotions implying the company will expand its stores from nine to 16 and to 200 in a couple years and become wildly successful and profitable.
But there’s a glaring problem with Cool’s implication.
If you lose money on nine stores, how do you make money on 200 stores?
You don’t.
*Conclusion
As we’ve researched and sought management’s comments for three articles, TheStreetSweeper’s conviction has strengthened.
We very strongly believe Cool is worthless.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in AWSM and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to streetsweepereditor@yahoo.com.