Wednesday, February 21, 2018 

Kodak, KodakCoin, Corruption & Bankruptcy

Bitcoin has come back to earth and is well off its high of $20,000. Still, many people are rushing to understand cryptocurrency and ICO-rage has not stopped. This New York Times Magazine piece remains our favorite primer on the topic of Bitcoin and Blockchain. Indeed, people seem to have fully adopted the Blockchain technology argument. Seems a safer argument to hang your hat on than Bitcoin is a commodity, a store of value, a...? Right, nobody has any effing clue. 

Coins though are still out there and, man oh man, do some of them seem shady AF. Like Kodak's ($KODK) for instance. The company issued a warning this week that several fraudulent websites and Facebook accounts are promoting and selling Kodak's digital token. One problem with that: the tokens haven't even been released yet. Kodak says it will take weeks to identify "accredited investors," particularly since 40k investors expressed interest in the offering. You read that right: 40-effing-thousand. 

Speaking of issuances, Kerrisdale Capital issued a MUST READ research report absolutely napalming the hell out of Kodak's proposed plan and calling for a short of the stock ("HODL to zero"...hahaha!!). Summarizing Kodak's otherwise inexplicable stock chart nicely (see below), Kerrisdale writes,

  • "Fittingly for a long-time provider of motion picture film products, Kodak’s sudden rise resembles something out of the movies. A dying relic of American manufacturing licenses its brand to a blockchain project and immediately creates over $300m of value. Along the way Kodak board members conveniently grant themselves shares the day before the announcement, a stock promoter with a checkered past is engaged for PR, and a group of German copyright trolls reinvent themselves as blockchain-enabled image platform managers." 


Significantly, Kerrisdale adds,

  • "Kodak faces significant debt maturities, tightening liquidity, and restrictive debt covenants while financials are in free fall. The company is a sub-scale player in a highly competitive, secularly declining industry. Management has repeatedly failed to stem negative free cash flow and botched long promised asset sales. The situation is grim and these same set of circumstances bankrupted the company 6 years ago. Kodak doesn’t have the luxury of hoping startup blockchain projects succeed – it’s staring at the possibility of default and a debt restructuring in the next 12-18 months. Potential ICO proceeds and royalty payments from KODAKOne do not change the high probability of these events. Rather than dreaming of a “new economy” for photographers, shareholders should be concerned about an eventual wipe-out. We view the equity as worthless, implying downside of -100%." 

Given how hard coins are to value on a fundamental basisKerrisdale sure makes this one easy.

Cue the Scarlet 22.