You are on page 1of 8

Muckraker

SHORT Paid Promotions Set Stage for Massive Dilution after Large Number of Shares Issued
to Insiders; Though a likely fraud, AWSM is, regardless, a zero.
Cool Holdings
(NASQ: AWSM) | Target: $0 Cool Holdings Inc is a retailer of mainly Apple products under the
Price $12.09 % Short 2% OneClick brand; AWSM has (4) stores in Florida, (6) stores in Argentina,
Shares 7.38 % Float 80% and (7) stores in the Dominican Republic. The Cooltech Distribution
Mkt Cap $89.18 Borrow Rate 149.7% brand distributs electronics to electronic resellers and retailers in
EV $91.88 1week Avg Volume 4.1m LATAM and the US.

September 24th, 2018


Background Like many scams, this story begins with a reverse merger. Infosonics, which produced a not-so-popular line
of verykool cell phones, underwent a 2017 reverse stock split to avoid delisting but was ultimately pending delisting due
to failure to hold any shareholder meetings; Infosonics subsequently completed a reverse merger with Cooltech Holdings
Corp. in early 2018. Cool Holdings Inc is a brick-and-mortar retailer of mainly Apple products under the OneClick brand;
AWSM has (4) stores in Florida, (6) stores in Argentina, and (7) stores in the Dominican Republic. However, the principle
Argentine address casts substantial doubt on management’s property claims (see later). Cool Holdings also operates
distribution business with other electronics resellers. There is compelling evidence to suggest Cool Holdings is operated
by dishonest management. Cool Holdings issued management massive amounts of shares and warrants and then used
the last of the company’s cash to purchase absurd paid promotions.

To begin, the business model is non-viable. Generally, and in reselling these branded electronics, there are two effective
business models – scale (TGT, WMT, BBY) and niche (AAPL, VZ, TMUS, T). As margins in the scale model are razer thin,
reselling branded products is a game of operational efficiency. Successful brick-and-mortar scale models have made
necessary advances in such efficiencies amid impacts felt by e-commerce, as well as forays into e-commerce. As, in many
cases, you effectively compete against your suppliers, you must be able to weaponize scale so that your operating costs
are dwarfed by your revenue and COGS. Business models absent these requirements, operating in competition with the
aforementioned, are doomed to negative profits and eventual failure. To be clear, AWSM does not engage in e-commerce.

However, the company has recently announced a plan to open 200 more stores by 2021. A cursory look at their financials
suggests this is impossible – the business barely offsets negative cash flows with dilution and the company had $429 in
cash in their most recent filing. In fact, before a round of massive dilution, $10m in current debt had rendered the
company virtually insolvent.

The company registered for a $25m shelf offering in June, with amendments in August and September. In mid-
September 2018, several articles with hilariously absurd claims broke on major platforms such as Zacks and Yahoo Finance.

“This just might be the biggest opportunity in real estate since Peter Minuit bought the
island of Manhattan for $24 worth of beads” This one is my favorite.
“This Could Be A $900 Million Real Estate Play In Phase 1 Alone”

AWSM's $3,750 sq/ft Claim Falls Flat


The article argues current locations churn out $3,750 revenue per sq ft;
therefore, with a 200 store expansion at an average size of 1,200 sq ft, AWSM
Stated Rev/sq ft $3,750 revenue will reach $900m at peak expansion.
Wynwood Miami Store 1727 sq ft
Implied Revenue $6,477,544 Assuming $3,750/sq ft on the square footage, the flagship Miami store ought to
bring in $6.4mn in revenue. However, the company records $6.7mn in US
US Revenue $6,707,485
% of Total 97%
revenue in 2017. There are three other stores in the United States.
Source: 8-K/A filed 5/21/18
Muckraker
“Dozens Of Luxury Consumer Tech Brand Opportunities - Potentially Worth Millions”
The article argues that the store COULD create additional retailing agreements with other successful brands. Nice phrasing.

At the bottom of these articles you may find a disclaimer “Cool Holdings will pay the Publisher four hundred fifteen
thousand US dollars over four months to produce and disseminate this article and certain banner ads … This compensation
should be viewed as a major conflict with our ability to be unbiased”i AWSM spent $415 on the paid advertising (recall
the $429 in cash?).

In response, volume and share price exploded on September 17th.

Anyway,

Let’s take a look at AWSM’s flagship store at 48 NW 25th St, Miami FL.

And just across the street …


Muckraker

As others have pointed out, AWSM’s flagship store is in a very poor and crime-ridden Miami neighborhood. I encourage
others to explore the surrounding area here.

Fortunately for AWSM, several 5-star Yelp reviews by newly-minted accounts all happened to make posts on the same
day, bolstering public opinion on the quality of their brand (haha). Yelp blocked (most) of the attempt. The Yelp reviews
of another FL location are hilarious and are worth reading; here.

There is little question that horribly operated stores in crime ridden Miami neighborhoods or deeply economically
troubled Latin American countries will certainly not rival the Apple’s revenue per sq ft.

Unfortunately, we aren’t able to accurately assess the profitability of the


OneClick Retail Stores OneClick Retail stores as Cooltech obfuscates their segmented
Q118 Q218 financials by neglecting to allocate expenses. For example, while the
Revenue 2,579 3,065 OneClick Retail Store segment has a reported 33%, 26% gross margin in
COGS 1,733 2,260 Q1,Q218, the actual gross margin is very likely near, or sub, zero.
Gross Profit 846 805
As each store buildout is both capex intensive and very likely non-
Operating Costs 1,906 1,791
accretive to profitability, one can only wonder how AWSM plans to
Operating Profit -1,060 -986
open additional stores and operate them for a prolonged period of
time – this business model is only viable if there is a sufficient supply
Gross Margin 33% 26%
of unsophisticated investors to manipulate with paid advertisements,
Operating Margin -41% -32%
from which they may raise capital and expand until a critical mass is
reached. I am not betting on it.
With $1,231 in unallocated expenses
It’s difficult to reason why management would go this route – use the
Source: Company reports
company’s last amount of cash to purchase extraordinarily manipulative
advertisements – as they face relatively certain failure. To be clear, regardless of the capital they raise, this company has
an extraordinarily high chance of failure (not to mention it is managed by dishonest people with connections to others
involved in micro-cap pump-and-dumps – see Barry Honig involvement).

In the days preceding the company exchanging their last cash for paid advertisements, the company issued massive
amounts of shares and warrants to management.
Muckraker

Insider Transactions
Reinier Voigt (CFO) 8/15/2018 8/17/2018 9/13/2018
Shares granted 14,610 31,869
Warrants 31,869
Shares 11,960 26,570 90,308
Alfredo Carrasco (COO)
Shares granted 62,194
Warrants 62,194
Shares 124,388
Mauricio Diaz (CEO)
Shares purchased 41,672
Warrants 424,348
Shares 125,014 549,362 591,034 591,034
Felipe Rezk (CMO)
Warrants 361,018
361,018 361,018 361,018

Average Price 3.82 3.53


Total % Ownership 13.6% 15.3%

Source: SEC Filings

Notably, the warrants vest just six month after issuance – in Q119.

Why do the company’s statements do not provide addresses of the numerous locations?
The reverse—merger agreement describes four consumer electronics stores in Argentina; incorporated in 2008, OneClick
Argenino’s principle address is listed as 1177, 9 de Julio Street, city of Rosario, Province of Santa Fe, Republic of Argentina.

Thanks to Google Street View … we can see a 2013 edition of OneClick Argentina’s main store.

Slightly zoomed in …
Muckraker

By 2016, however, the store appears to have another operator and is also up for sale.
Muckraker

In August 2017 the location has changed hands once again,

Additionally,

According to Cooltech, they’ve held the lease on this Argentinian address since February 2017.

An August 2017 snapshot:

I will leave interpretation of this to readers.


Muckraker

Catalysts:
$25m shelf offering hits, inept retail investors don’t last forever, SEC investigation (others have reported), and
delisting

Risks:
Catalysts could take time to materialize. Cost of borrow is an abysmal 149% on Interactive Brokers.

Appendix
Multiple private placements with Laidlaw & Company – which was recently sanctioned by FINRAii. Read an interesting,
though somewhat tangential, expose on Laidlaw and Barry Honig here.

What’s a pump-and-dump without some related party fun? Smash Technologies, Inc received nearly $200k from the
impoverished company during 3Q18. Smash Technologies, Inc is “a reseller of accessories”. However, Smash Technologies,
Inc evidently only exists in conjunction with its incorporation documents and Cool Holdings and Infosonic’s SEC filingsiii.
Smash Technologies, Inc is owned and operated by a family member of AWSM management.

Investment and $66,666 evidently borrowed from Barry Honig, who was recently profiled in the WSJ following
announcement of SEC investigation regarding multiple microcap pump-and-dump scamsiv.

CMO Felipe Rezk’s experience as Head of Enterprise Sales, ALAC has been parlayed into “Apple Experience is Embedded
in Their Executive DNA”. As anyone who has done enterprise sales to LATAM knows, selling to LATAM businesses is not
an easy gig. The lack of data and financial resources often relegates the region to the bottom of the strategic priority list.
Of course, for two years Felipe was tasked with selling Apple products to businesses, not consumers, and in one of the
most difficult-to-access markets in the world.

Here’s some short interest data:

Short Interest
6/29/2018 7/13/2018 7/31/2018 8/15/2018 8/31/2018 9/14/2018
Short Interest 101,547 126,319 130,244 126,804 129,221 134,441
% Short 1.7% 2.1% 2.2% 2.1% 2.2% 2.3%
Average Daily Share Volume 119,310 85,386 52,448 35,378 60,732 154,636
Days to Cover 0.85 1.48 2.48 3.58 2.13 0.87
Source: NASDAQ

Thanks for reading. Happy hunting.

Muckraker
Muckraker

i
https://finance.yahoo.com/news/next-big-thing-retail-233000988.html
ii
https://www.stopbrokerfraud.com/news/laidlaw-company/
iii
https://www.google.com/search?q=%22Smash+Technologies%2C+LLC%22&oq=%22sm&aqs=chrome.0.69i59j69i57j35i39j0l3.791j0
j7&sourceid=chrome&ie=UTF-8
iv
424B3 Prospectus Supplement, filed 02/12/2018

The claims presented here are my own opinion and do not represent investment advice.