Color Star Technology (NASDAQ:CSCW), a Chinese-controlled penny stock, announced it is going to play its NFT (non-fungible tokens) card. This may have something to do with the recent spike in the CSCW stock price to $1.24 as of April 22. But don’t count on anything big happening any time soon.
The thing is, Color Star Technology has no revenue. It only has expenses. Last year it burnt through $5.1 million. Doing what, it is not really clear.
Nevertheless, somehow now the company now has a $67 million market capitalization, according to Seeking Alpha.
Capital Raise For Its App
But the real reason this has happened is that Color Star Technology raised $26 million on Feb. 18 by selling Regulation S shares at $1.30 per share. Reg S share sales are regulatory exempt sales to non-U.S. investors — in this case, likely Chinese investors.
Officially, the deal is supposed to allow the company to develop “Artificial Intelligence (AI), Augmented Reality (AR), and Mixed Reality (MR) technologies to create virtual communities for the Company’s software application.” This refers to the company’s app for online concerts, called the Color World App, which was launched in September 2020.
From what I can tell, the company does not make any money from the app, nor even from the online concerts that it sponsors. Maybe there is some concept down the road to sell ads or something, but right now there is no slide deck or any kind of business model.
The Supre NFT Deal
The only hint of money coming in the door is the recent announcement that the company would strategically cooperate to develop future NFTs. The tokens probably relate to its online concerts.
But again, there is no indication in the announcement how the company will make money, make sales or even split the development of the NFTs with Supre NFT.
Obviously, this is an attempt by the company to gain a certain cachet. Color Star wants to be seen as being on top of the latest development in blockchain monetization.
For example, a JPG file was sold in auction in NYC on March 11 for $69 million. This astounded the art world and everyone else, especially art-related companies, those with film and record libraries and many blockchain-related companies.
The only problem is that Color Star Technologies does not have any real, valuable assets. It might have recording copies of online concerts. It might have signed up a number of Chinese artists to potentially give music lessons on its app.
But it makes no revenue, has no revenue source, no advertising, no royalties, not anything of any value from a monetary standpoint. Maybe it can sell NFTs for some undisclosed value. But that is not a business plan.
What to Do With CSCW Stock
I don’t want to clearly state that CSCW stock is another Chinese stock scam. There have been a lot of these in the past several years.
Maybe the company really has $26 million in its bank account. We will have to see whether an auditor is willing to attest to that amount in its bank account for its year ending June 30, 2021. But that attestation won’t likely appear to be made until sometime in November 2021, when its required 20-F annual report is filed with the Securities and Exchange Commission (SEC).
Nevertheless, even if you have the willingness and faith to invest in this highly, highly speculative stock, you should at least wait until the stock falls. For example, with 26 million in the bank, and with 74.861 million shares outstanding (including an additional 20 million shares for the $26 million sold at $1.30), the cash per share is worth no more than 34.73 cents per share.
Therefore, don’t buy CSCW unless it trades at some significant discount to 35 cents per share, at least a 20% discount. And don’t be surprised if some short-seller research report comes out on the stock before it gets there.
On the date of publication, Mark R. Hake did not hold any long or short position in any security mentioned in the article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
